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(With agency inputs)

NEW DELHI: On Wednesday, the rupee breached the psychological 73-mark against the US dollar to close at a new record low of 73.34. The domestic currency ended 43 paise or 0.59 per cent lower against its previous close of 72.91.Strong demand for the American currency from importers, concerns of fears of rising fiscal deficit and capital outflows mainly weighed on the domestic currency. Investors also remained concerned over sustained foreign capital outflows and soaring crude oil prices that crossed the $85 per barrel.Amid the rout in rupee , the Reserve Bank of India (RBI) started its three- day meeting on bi-monthly monetary policy. The central bank said it will relax external commercial borrowings (ECB) policy to allow state-run oil marketing companies to raise external debt for working capital purposes. The RBI will permit oil marketing firms to raise overseas funds with minimum average maturity period of 3 or 5 years under the automatic route.The Street is expecting from the central bank a third back-to-back repo rate hike as inflation is expected to accelerate further due to higher crude prices and the weakness in rupee.After two successive hikes, the repo rate currently stands at 6.50 per cent."With petrol and diesel prices moving up, there is a strong expectation that inflation will also move up. So, they (RBI) may take a pre-emptive action. I feel there will be an increase of 25 basis points in the repo rate," Union Bank of India managing director and chief executive Rajkiran Rai G said.A section of the market is also expecting some drastic measures with the RBI and the government stepping in to arrest any further slide in the rupee. One of the steps could be the announcement of an NRI bond at an attractive rate. The second option could be curbs on banks and other traders in the forex market that would discourage speculation against the rupee. Such an approach was taken by the central bank during the rupee crisis in 2013 and economists are expecting a similar action this time too.Bankers also expect RBI to take a more hawkish stance, if indeed the repo rate is hiked yet again.The SBI , in its research report, Ecowrap, said the RBI should raise the policy repo rate at least 25 basis points (bps) to arrest the rupee's fall."We rule out a hike of 50 basis points, as it may spook the market. However, there is a probability of change in neutral stance too, as three successive rate hikes with a neutral stance could contradict RBI message," the research report said.Reports by Kotak Economic Research and Morgan Stanley have also predicted a 25 bps rate hike.