The rupee on Wednesday recovered from early lows to close 10 paise up at nearly three-week high of 64.33 against the dollar after the Reserve Bank of India lowered its inflation forecast while keeping the policy rates unchanged.
The Reserve Bank on left the repo rate unchanged citing risks to inflation due to spurt in farm loan waivers by states but increased lending capacity of banks to support economic growth.
Gains in stock markets which witnessed foreign fund inflows on net basis also supported the local currency, dealers said.
Currency traders and speculators mostly cut their exposure to dollar currency futures in the face of UK General Election on Thursday, a forex dealer said.
The rupee saw a volatile trade in morning session and touched a low of 64.51 per dollar against last close of 64.43 per dollar ahead of the RBI's policy announcement.
However, the domestic unit staged a resounding comeback towards the close to hit a high of 64.29 before ending at 64.33, revealing a gain of 10 paise, or 0.16 per cent.
This is the highest close for the rupee since May 17.
The RBI lowered the economic growth forecast for the current fiscal to 7.3 per cent from 7.4 per cent earlier.
On the inflation front, the RBI cut its headline inflation projection to 2.0-3.5 per cent in the first half of the year and 3.5-4.5 per cent in the second half.
The RBI, meanwhile, fixed the reference rate for the dollar at 64.4538 and for the euro at 72.6588.
On the global front, the greenback touched fresh six-week lows against the safe haven yen as investors retreated to the sidelines amid concerns over a range of looming geopolitical risk events.
The dollar index, which tracks the US Currency against a basket of six major rivals, however was up 0.28 per cent at 96.77.
Foreign portfolio investors (FPIs) bought shares worth a net Rs 73 crore today, as per provisional data released by the stock exchanges.
Meanwhile, the Indian benchmark sensex regained by 80.72 points or 0.26 per cent to close at 31,271.28 today.
In forward market today, premium for dollar declined on fresh receivings from exporters.
The benchmark six-month premium payable in November dropped to 141-143 paise from its previous level of 144-146 and far forward May 2018 contract also eased to 289-291 paise from Tuesday's closing level of 294-296.
In cross-currency trades, the rupee rebounded against the pound sterling to end at 83.06 from 83.15 per pound and bounced back against the Euro to settle at 72.15 from 72.48 earlier.
The domestic currency also recouped against the Japanese Yen to finish at 58.78 per 100 yens from 58.95 yesterday.
