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Continuing its uptrend for the second straight day, the rupee on Wednesday surged by another 27 paise to end at over three-week high of 67.63 even as the Reserve Bank of India (RBI) unexpectedly kept policy rates steady.
Heavy selling of the US dollar by banks and exporters in the face of renewed capital inflows predominantly kept sentiment highly buoyant.
In a surprise move, the Monetary Policy Committee on Wednesday belied expectations to keep the short-term lending rate unchanged and also lowered GDP (gross domestic product) growth rate to 7.1 per cent in the midst of short-term disruption in economic activities due to demonetisation.
The US Federal Reserve will meet next week amid speculation that it would raise interest rates aided by strong revival signs in the world's largest economy.
Meanwhile, domestic equities took a big knock after two-day up move reacting to depressing central bank action as investors were anticipating a 25 basis point cut in key rates.
At the Interbank Foreign Exchange (forex) market, the home currency resumed firm at 67.84 as compared to Tuesday's closing value of 67.90 and gained further ground, maintaining its edge against the dollar ahead of RBI policy meet.
Though, it gave a knee-jerk reaction to the policy outcome, reversing the early trend to touch a fresh low of 68.05 briefly before rebounding to close at the day's high of 67.63, revealing a solid gain of 27 paise, or 0.40 per cent.
This is the currency's highest closing since November 11 when it had ended at 67.25 against the dollar.
The local unit had ended 31 paise higher on Tuesday.
In worldwide trade, the US dollar was little changed against the other major currencies on Wednesday, as investors remained cautious ahead of the European Central Bank's policy meeting on Thursday and the highly-anticipated Federal Reserve policy decision due next week.
The US dollar index was quoted marginally at 100.51 in the late afternoon.
Meanwhile, the RBI on Wednesday fixed the reference rate for the dollar at 67.8707 and euro at 72.7506.
In cross-currency trades, the rupee hardened against the pound sterling to settle at 85.22 from 86.60 and firmed up further against the Japanese yen to end at 59.28 from 59.54 per 100 yens on Tuesday.
The home currency also rebounded sharply against the euro to finish at 72.49 from 73.11 earlier.
