The rupee was trading marginally strong by 5 paise at 62.45 against the dollar at 4.30 p.m. local time.
The rupee strengthened by 23 paise to 62.27 per dollar in the opening trade against the previous close of 62.50 to a dollar after the Reserve Bank of India unexpectedly raised the interest rates to bring down consumer inflation.
The RBI hiked its repo rate, the interest rate at which it lends short-term funds to banks, by 0.25 per cent to 8 per cent.
According to a dealer with a public sector bank, the repo rate hike by RBI was a measure to keep the rupee volatility under check as higher rates can make the currency more attractive for foreign investors.
However, Abhishek Goenka, Founder and Chief Executive Officer of India Forex Advisors, said that the rupee is likely to turn weak amid the Federal Open Market Committee meet where the Federal Reserve is expected to taper the QE by $10 billion.
The inter-bank call money rate, the rate at which banks borrow short-term money from each other, opened flat at 8.30 per cent. Yield on the benchmark 8.83 per cent government bond maturing in 2023 softened to 8.73 per cent from the previous close of 8.74 per cent. Prices rose to ₹100.58 from ₹100.50.