Mumbai: The rupee bounced back from early losses to end at a fresh two-week high of 68.43, up by another 11 paise against the US dollar, even as the RBI hiked repo rate by 25 basis points today.
The forex market sentiment was buoyed by the Reserve Bank maintaining its growth outlook for the economy, projecting an GDP expansion rate of 7.4 per cent in 2018-19 on the back of robust macroeconomic environment.
The central bank's upbeat comments on the economic growth outlook predominantly triggered a fresh leg of a bullish move for the home currency after initial wobbliness.
A sharp fall in global crude prices further supported the local currency.
Joining the global tightening bandwagon, the RBI for the second straight meeting raised its benchmark interest rate by 0.25 per cent to 6.50 per cent on hardening inflationary risks, while not strangulating growth.
The key trigger for the rate hike was the expectation that inflation could go up rapidly in the next one year impacted by a steep hike in minimum support prices of crops.
Markets were expecting that the RBI would prefer to wait for the full impact of the MSP, monsoon progress and the US Fed outcome before hiking rates in October, a forex dealer commented.
The bond markets also reacted positively, with the 10-year benchmark bond yield plugning by 7 bps to 7.70 per cent from 7.77 per cent.
Earlier, the Indian unit opened flat at 68.55 against overnight close of 68.54 at the interbank foreign exchange market ahead of the monetary policy.
It weakened further to hit a low of 68.60 in early trade before a trend reversal in reaction to RBI policy announcement.
The rupee finally managed to end at the day's high at 68.43, revealing a rise of 11 paise, or 0.16 per cent. this is the highest level since July 17 when the rupee had closed at 68.45.
Yesterday, the rupee had gained 13 paise.
The Financial Benchmarks India private limited (FBIL), meanwhile, fixed the reference rate for the dollar at 68.6058 and for the euro at 80.1151.
Globally, the US dollar traded firm against its major rivals after a report said the US is considering raising the suggested tariffs on USD 200 billion worth of Chinese goods from 10 per cent to 25 per cent, giving a severe blow to the Chinese economy.
Against a basket of other currencies, the dollar index was marginally down at 94.32.
On the energy front, crude prices slipped below USD 74 a barrel pressured by an industry report that US stockpiles of crude rose unexpectedly and by higher OPEC production, adding to indications of more ample supply.
The benchmark Brent for September settlement is trading sharply lower at USD 72.75 a barrel in early Asian trade.
In the cross currency trade, the rupee recovered against the pound sterling to finish at 89.86 per pound from 90.21 also recovered against the euro to end at 79.95 compared to 80.47 earlier.
The home unit remained firm against the Japanese yen to settle at 61.19 per 100 yens from 61.50.
In forward market today, premium for dollar settled virtually steady in the absence of market moving factors.
The benchmark six-month forward premium payable in December and the far-forward June 2019 contract was quoted at 123-125 paise and 270.50-272.50 paise, respectively.