The rupee traded higher on Friday, rising 12 paise to 81.61 versus the US dollar after the announcement of the RBI’s monetary policy committee.

The domestic unit began at 81.60 against the dollar on the interbank foreign exchange, with an early high of 81.45 and a low of 81.69.

At midday, it was trading at 81.61 against the US dollar, up 12 paise from the previous close.

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Meanwhile, the dollar index, which measures the strength of the US currency against a basket of six currencies, declined 0.3% to 111.90. Brent crude futures, the international benchmark for oil, slipped 0.12% to $88.32 a barrel.

The rupee rebounded from a record low on Thursday, closing 20 paise higher at 81.73 versus the dollar.

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The Reserve Bank of India (RBI) hiked the benchmark lending rate by 50 basis points to 5.90% on Friday in an effort to control inflation, which has stayed over the RBI’s tolerance limit for the previous eight months.

With the most recent increase, the repo rate, or short-term lending rate at which banks borrow from the central bank, is currently close to 6%.

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“Decision widely expected and no negative surprises have supported the rupee and stock markets strength after the announcement,” Sriram Iyer, Senior Research Analyst – Currency & Commodity at Reliance Securities, said.

“Moreover, domestic inflation will continue to remain sticky, which will prompt the central bank to remain hawkish on rates with the final terminal rate close to 6.50 per cent to 6.75 per cent till FY23,” Iyer said.

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While announcing the monetary policy, RBI Governor Shaktikanta Das stated that the rupee’s movement versus the US dollar is orderly, with the local currency depreciating just 7.4% this year as of September 28.

“RBI does not have a fixed exchange rate for rupee and it intervenes in the market to curb excessive volatility,” Das said.

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The Sensex was up 469.62 points, or 0.83%, at 56,879.58 points, while the Nifty was up 138.70 points, or 0.82%, at 16,956.80 points.