The rupee pared initial losses and settled marginally higher at 82.47 against the US dollar, on Wednesday, after the Reserve Bank of India (RBI) hiked the key repo rate by 35 basis points.
Easing crude oil prices also supported the domestic unit, forex traders said.
At the interbank foreign exchange market, the local unit opened at 82.74 and touched an intra-day high of 82.40 and a low of 82.75 against the greenback.
The local unit finally settled at 82.47, registering a rise of 3 paise over its previous close of 82.50.
"In line with expectation, the RBI raised rates by another 35 bps. It lowered its FY23 GDP forecast to 6.8 per cent from 7 per cent," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
The RBI mentioned that inflation could remain above 4 per cent in the next 12 months.
"The commentary from the RBI governor was less hawkish and impact on the currency has been relatively muted as it was more or less in line with market expectation," Somaiya said. "We expect the USD-INR (Spot) to trade sideways and quote in the range of 82.20 and 82.80."
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, advanced 1.10 per cent to 105.68.
Global oil benchmark Brent crude futures fell 1.79 per cent to $77.93 per barrel.
On the domestic equity market front, the 30-share BSE Sensex declined 215.68 points or 0.34 per cent to end at 62,410.68, while the broader NSE Nifty fell 82.25 points or 0.44 per cent to 18,560.50.
Foreign Institutional Investors (FIIs) were net sellers in capital markets as they offloaded shares worth ₹635.35 crore on Tuesday, according to exchange data.