Mumbai: The rupee on Tuesday bounced back 21 paise, its biggest gain in more than two weeks, to close at 61.31 against the dollar after the RBI hiked a key interest rate to curb price rise and enhanced liquidity for banks.
The rupee got a boost as stock market investors cheered the Reserve Bank's steps. Fresh dollar sales by exporters amid sustained capital inflows also supported the local currency.
The rupee opened lower at 61.60 a dollar from the previous close of 61.52 and dropped to a low of 61.72. Later, it rebounded to settle at the day's high of 61.31, a rise of 21 paise or 0.34 percent.
It was the biggest gain for the rupee since climbing 32 paise to 61.07 on October 11.
The RBI increased the policy repo rate to 7.75 percent and cut the marginal standing facility (MSF) rate to 8.75 percent, as was widely expected. It increased liquidity provided through seven-day and 14-day term repos.
"RBI was seen acting as per the expectations as it hiked the repo rate by 25 bps and cut down the MSF by 25 bps. Later during the day, the rupee was seen posting gains supported by the rally in stock markets," said Abhishek Goenka, CEO of India Forex Advisors.
The 30-share S&P BSE Sensex rallied 359 points, or 1.74 percent, to an almost three-year high of 20,929.01, snapping a five-day losing trend. Overseas investors bought a net Rs 636.78 crore of shares yesterday, according to provisional data with the stock exchanges.
The dollar index was trading 0.18 percent higher against a basket of six major currencies.
"The dollar index is trading strong ahead of data on US retail sales and consumer confidence, due later in the day, which capped the rupee gain," said Pramit Brahmbhatt, CEO of Alpari Financial Services (India).
Forward dollar premiums closed weak on fresh receipts from exporters. The benchmark six-month forward dollar premium payable in March declined to 207-1/2-210-1/2 paise from the previous close of 213-1/2-215-1/2 paise and far-forward contracts maturing in September dropped to 433-436 paise from 441-444 paise.
The RBI fixed the reference rate for the dollar at 61.4630 and for the euro at 84.7244.
The rupee recovered to 98.56 against the pound from 99.63 previously and ended higher at 84.34 per euro from 84.90. It improved to 62.67 per 100 Japanese yen from 63.01.
