The rupee erased its initial losses and was trading strong at 61.45 against the dollar at 1.15 p.m. local time.
After opening weak by 14 paise at 61.67 per dollar against the previous close of 61.53, the domestic unit gained strength soon after the RBI second quarter monetary policy review announcement.
It had declined to 61.72 in the early morning trade.
As expected, the central bank raised the repo rate by 25 bps to 7.75 per cent and cut the MSF rate by 25 bps to 8.75 per cent. But it has left the cash reserve ratio unchanged at 4 per cent.
The reduction in MSF rate will help banks borrow short-term funds at a lower rate. This helped boost the market sentiment.
Citing urgency to anchor inflationary expectations, RBI had already hinted at hiking the key interest rate in its report on macroeconomic and monetary developments released on Monday.
Call Rates and G-Secs
The 7.16 per cent government security maturing in 2023 was trading higher at Rs 90.75 from Rs 90.50 previously, while its yield softened to 8.59 per cent from 8.66 per cent.
The overnight call money rate was trading weaker at 8.70 per cent from the previous close of 8.95 per cent.
