Reversing a two-session losing streak, the rupee appreciated by 16 paise to close at 79.24 against the US dollar on Friday after the Reserve Bank hiked interest rates by 50 basis points.
At the interbank foreign exchange market, the domestic currency opened at 79.15 per dollar and hovered in a range of 78.94 to 79.29.
It finally settled at 79.24, up 16 paise over its previous close of 79.40.
The Reserve Bank on Friday raised the key interest rate by 50 basis points to 5.40 per cent to cool stubbornly high inflation. This was the third straight increase since May. With this, the repo rate or the short-term lending rate at which banks borrow has crossed the pre-pandemic level of 5.15 per cent.
Meanwhile, the dollar index, which measures the greenback's strength against a basket of six currencies, was up 0.25 per cent at 105.95.
Forex traders said foreign fund inflows into capital markets also boosted the local currency.
Foreign institutional investors remained net buyers in the capital market on Friday as they purchased shares worth Rs 1,605.81 crore, as per exchange data.
Brent crude futures, the global oil benchmark, rose 0.20 per cent to USD 94.31 per barrel.
Reserve Bank of India (RBI) Governor Shaktikanta Das said the central bank will remain watchful and maintain the stability of the rupee.
"The depreciation of the Indian rupee is more on account of the appreciation of the US dollar rather than weakness in macroeconomic fundamentals of the Indian economy. Market interventions by the RBI have helped in containing volatility and ensuring the orderly movement of the rupee," he said.
On the domestic equity market front, the BSE Sensex ended 89.13 points or 0.15 per cent higher at 58,387.93, while the broader NSE Nifty advanced 15.50 points or 0.09 per cent to 17,397.50.
"In line with expectation, RBI raised rates by 50 bps. The governor added CPI inflation remains uncomfortably high. Inflation is expected to remain above the upper tolerance threshold in Q2, Q3," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
Somaiya further said the focus will be non-farm payrolls data in the US and better-than-expected numbers could support the dollar at lower levels. "We expect the USD-INR (spot) to trade sideways and quote in the range of 78.80 and 79.50 in the short-term," he added.
According to Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas, the Indian rupee opened higher on overnight decline in US dollar and weak crude oil prices. Positive domestic markets also supported the rupee.
"We expect the Rupee to trade on a positive note amid positive global markets and a weak US Dollar. Decline in crude oil prices may also support the Rupee," Choudhary said, adding that "USD-INR spot price is expected to trade in a range of Rs 78.50 to Rs 80 in next couple of sessions." P
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