Mumbai: The rupee bounced off a near three-week low touched in early trade yesterday after the Reserve Bank announced a cut in its key repo rate by 0.25 per cent to 7.5 per cent.
The partially convertible rupee closed at 54.38 per dollar, weaker compared to its close of 54.17 on Monday. The rupee strengthened to as much as 53.91 in early trade, its highest since February 28.
The RBI cut its key lending rate almost as expected, spurring a brief rally in markets, but warned that scope for further easing was limited, prompting markets to soon start reversing the gains.
"Political stability is the new concern now. The market was caught short following the rate cut decision, and hence the dollar/rupee spiked up," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
"Going ahead we may see a range of 53.90 to 54.60 on the dollar/rupee this week. Unless some new event crops up in the euro zone, I expect the dollar to be capped at 54.60 on the top," he added.
The Sensex fell the most this month on Tuesday after DMK withdrew support from the ruling coalition UPA government. In the onshore forwards, the one-year premium shot up to 357 points compared to 350.25 points.