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) today cut CRR by 0.25 per cent to 4.50 per cent 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 per cent after the government hiked diesel prices to contain the fiscal deficit and opted for big-bang reforms to push growth.