The rupee today erased initial gains to closed flat at 54.85 against the US dollar amid RBI keeping key rates unchanged in the mid-quarter policy review.
While the rupee snapped a four-session downslide, it rupee could not cement intra-day gains as RBI kept short-term lending (repo) and Cash Reserve Ratio (CRR) unchanged, forex dealers said.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced firm at 54.70, which was also the day's high, from overnight close of 54.85.
This early move was attributed to the initial uptick in local stocks amid a weak dollar overseas and persistent foreign fund inflows.
However, it later fell back to a low of 55.05 in late morning session after the Reserve Bank of India (RBI) left the key rates stable and hinted easing of rates in the next meeting scheduled for January 29.
However, emergence of dollar selling at the fag end and rise in equities helped the rupee to bounce back to settle steady at its Monday's closing level of 54.85.
The dollar index was down by 0.15 per cent against a basket of six major currencies.
FIIs pumped Rs 922 crore (approx. USD 170 million) in stock markets today as per provisional BSE data.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The rupee closed stable after disappointment from RBI which maintained a status quo."
We saw rupee drifting lower towards 55.00 levels after the RBI's decision, said Abhishek Goenka, Founder & CEO, India Forex Advisors.
In the last four sessions, rupee had fallen by 59 paise or 1.09 per cent against the US dollar.
Meanwhile, the Indian benchmark Sensex today closed up by 120.33 points or 0.63 per cent.
"Going forward, we expect the buying pressure and year end profit booking to put more pressure on the rupee and it can depreciate towards 55.25 levels," Goenka said.
Meanwhile, the premium for the forward dollar recovered on fresh paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in May firmed up to 163-164 paise from yesterday's close of 160-162 paise.
Far-forward contracts maturing in November also settled higher at 309-310-1/2 paise from 304-1/2-306-1/2 paise.
The RBI has fixed the reference rate for the US dollar at 54.8490 and for euro at 72.2440.
The rupee fell further against the pound sterling to end at 88.93 from overnight close of 88.86. It also remained weak against the euro to 72.30 from 72.16.
The rupee, however, recouped losses against the Japanese yen to close at 65.39 per 100 yen from last close of 65.53.