Mumbai: Tracking stock market movements, the rupee on Monday surged to 53.66 a dollar on robust capital inflows but pared some gains to close at 54.01 -- still 29 paise higher -- amid Reserve Bank infusing Rs 17,000 crore into system by way of a cut in Cash Reserve Ratio.
At the Interbank Foreign Exchange (Forex) market, the rupee resumed sharply higher at 53.80 a dollar compared to last Friday's close of 54.30.
Soon after, it zoomed to a high of 53.66 on initial rally in stocks as FIIs pumped in Rs 2,252 crore (USD 410 million).
The Reserve Bank of India (RBI) on Monday cut CRR by 0.25 percent to 4.50 percent to release Rs 17,000 crore into the system but kept the lending rates unchanged in view of inflation and twin deficit risks, despite hopes of a rate cut.
But with the Indian stock market benchmark Sensex, which was up by over 250 points initially, trimming gains after RBI decisions, the rupee too weakened by 15 paise in knee-jerk reaction.
Sentiments continued to remain weak before dollar selling by exporters and some banks helped the rupee settle at a 4-month closing high of 54.01, a rise of 29 paise over Friday's close.
Bankers said the CRR cut releases more liquidity into the market, putting pressure on the rupee.
"We saw rupee getting weak by 12-15 paise after RBI announced 25 bps CRR cut in its Mid Quarter Monetary Policy Review today. The rupee started appreciating against the dollar last week after QE3 announcement and FDI reforms introduced by India.
"However, today's moves indicate the recent gains were short-lived and the trend remains bearish," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Last Friday, rupee spurted by 113 paise or 2.03 percent after the government hiked diesel prices to contain the fiscal deficit and opted for big-bang reforms to push growth.
The dollar index was trading up against a basket of six major currencies while New York crude oil was quoting below USD 99 a barrel in Europe Monday.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said," The CRR cut and the policy reforms initiative by the government aided the rupee in its stupendous gain...The dollar index remained in a 'bounceback' mood and has been making attempts to edge higher but the gains were capped."
The premium for the forward dollar declined further on persistent receipts for exporters.
The benchmark six-month forward dollar premium payable in February settled lower at 155-157 paise from 157-159 paise last weekend.
The premium for far-forward contracts maturing in August also finished weak at 304-306 paise from 307-309 paise.
The RBI has fixed the reference rate for the US dollar at 53.9740 and for euro at 70.8415.
The rupee also strengthened against the pound sterling to 87.63 from last Friday's close of 88.11 and also improved further to 70.80 per euro from 71.15.
It hardened also against the Japanese Yen to 68.89 per 100 yen from previous close of 69.63.