On Wednesday, the rupee had closed higher at 71.53 against dollar. The rupee strengthened by 24 paise to settle at 71.29 against the dollar on Thursday after the RBI promised to continue with "accommodative" stance in its monetary policy.
The central bank, however, decided to keep key interest rate unchanged in its fifth bi-monthly monetary policy for the ongoing financial year.
The rupee traded on a flat note for a better part of the session but briefly fell post RBI monetary policy announcement.
It, however, recovered swiftly in the last hour of the trade to close higher at 71.29.
On Wednesday, the rupee had closed higher at 71.53 against dollar.
"Rupee edged higher after RBI left the policy rate at 5.15 per cent, the first pause after five consecutive rate cuts, amid rising inflation expectations," HDFC Securities said in a note. The six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, unanimously voted to hold the key repo rate at 5.15 per cent and reverse repo rate at 4.90 per cent.  Bankers and economists had widely expected the central bank to cut rates for the sixth time to support a slowing economy.All six members of the Monetary Policy Committee voted to maintain the repo rate at the existing level and hold the reverse repo rate at 4.90 per cent."India's sovereign bonds declined the most in more than two months, the benchmark 10-year bond yield bonds rose 13 basis points to 6.60 per cent, after central bank kept policy rate unchanged The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth," HDFC Securities added. The 10-year government bond yield was at 6.60 per cent, up over 2 per cent. The rupee's rise was also supported by weaker dollar against key global currencies. The dollar index, which gauges the greenback's strength against a basket of six currencies, was down 0.16 per cent at 97.49. Meanwhile, the S-P BSE Sensex ended 71 points or 0.2 per cent lower at 40,780 and NSE Nifty 50 index declined 25 points or 0.2 per cent to settle at 12,018 on Thursday.Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 781.06 crore on Wednesday, according to provisional exchange data. Crude oil benchmark, Brent Futures, rose 0.65 per cent to $ 63.41 a barrel.