The rupee witnessed range-bound trading in initial deals against the US dollar on Thursday, ahead of the Reserve Bank of India's monetary policy outcome.

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Market participants are awaiting cues from the central bank's observation of recent events and its observations on food inflation which continues to remain high.

Foreign fund outflows and gains in Brent crude price further dented investor sentiments.

At the interbank foreign exchange, the rupee opened at 83.94 against the greenback, then touched 83.93, registering a rise of 2 paise over its previous closing price.

On Wednesday, the rupee consolidated in a narrow range and settled for the day lower by 3 paise at 83.95 against US dollar.

"Indian rupee was again sold off as it closed at 83.95 on Wednesday very close to the psychologically important level of 84.00. Market will await the monetary policy before checking on RBI allowing the rupee to fall further as it protects 83.96," said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.13 per cent lower at 103.06.

Brent crude, the global oil benchmark, advanced 0.43 per cent to USD 78.67 per barrel.

The Indian Central Bank is set to hold rates for the ninth consecutive month but investors were hoping for a more dovish tone. Though markets still do not expect a cut in the next meeting in October, the first cut may come in February-2025.

"The market awaits the central bank's observation of recent events and what it is says on food inflation which continues to remain higher at around 7 per cent with vegetable inflation around 30 per cent," Bhansali said.

The Reserve Bank's rate-setting panel started its three-day deliberations for the next set of bi-monthly monetary policy on Tuesday amid expectations of no change in benchmark interest rate in view of concerns on inflation and economic growth remaining steady.

The decision of the RBI Governor Shaktikanta Das-headed six-member Monetary Policy Committee (MPC) will be announced later on the day.

On the domestic equity market front, Sensex declined 251.76 points, or 0.32 per cent, to 79,216.25 points. The Nifty fell 83.80 points, or 0.34 per cent, to 24,213.70 points.

Foreign institutional investors (FIIs) were net sellers in the capital markets on Wednesday as they offloaded shares worth Rs 3,314.76 crore, according to exchange data.