The rupee on Tuesday erased initial gains to close 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 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 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.

Meanwhile, Sensex on Tuesday closed up by 120.33 points or 0.63 per cent.

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