Mumbai: The Indian rupee seesawed in early trade on Friday with losses in domestic shares and dollar gains pressuring it lower but expectations of a tighter monetary policy supporting the local currency.

At 10:06am, the partially convertible rupee was at Rs46.36/37 per dollar, little changed from its Thursday’s close of Rs46.35/36. It has traded in a Rs46.32-46.42 band so far in the session.

“Weaker stocks and a marginally stronger rupee is possibly some sort of a reaction to rate hike expectations. The disconnect today is some sort of position adjustment and that to me looks predicated on the rate expectations,” said R.K. Gurumurthy, head of treasury, at ING Vysya Bank.

“If only cash reserve ratio is hiked, I see rupee testing Rs46.50. Much the same on rate hikes also, as I would imagine some amount of intervention to curb volatility; Rs46.20-46.50 looks like the range for the day,” he added.

The central bank’s quarterly policy review is due at 0545 GMT, and most analysts expect an increase in banks’ cash reserve requirements, the proportion of deposits that banks must keep with the Reserve Bank of India as cash.

However, recent strong economic data and the tone of the central bank’s macroeconomic review on Thursday evening, has increased the risk of interest rates also being raised, dealers said.

The rate hike could cause a sell-off in stocks and thus weigh on the rupee in a knee-jerk reaction, dealers said. However, the longer-term outlook for the rupee would be positive, they added.

In its macroeconomic review ahead of the policy, the central bank said there was a possibility of high food price pressure spilling over to other segments of the wholesale price inflation.

The index of the dollar against six major currencies was up 0.2%. Asian currencies were trading weaker compared to the dollar.

The euro hit a nine-month low on the yen and a six-month low on the dollar on Friday as concerns about Greece’s fiscal situation intensified, while the Japanese currency rose broadly as weaker stocks further clouded sentiment.

Indian shares dropped more than 1.3% in opening deals on Friday, hurt by a slide in global stocks.

One-month offshore non-deliverable forward contracts were quoted at Rs46.39/49, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX were both quoting at 46.4550, with the total traded volume on the two exchanges at about $680 million.