The Indian rupee strengthened to its highest in more than two years amid heavy selling of dollars by foreign banks, with the central bank decision to cut interest rates having only a limited impact, according to traders.
The dollar had briefly touched a 15-month low against a basket of major currencies on Tuesday, though it bounced modestly on Wednesday.
The move in the rupee was magnified as the Reserve Bank of India refrained from intervening to cap broader gains in the domestic currency, traders said, adding they were unsure why the central bank had stayed away.
The RBI typically intervenes through state-run banks by buying or selling dollars whenever the rupee moves sharply either way.
"Today, the lack of buying dollars by RBI has made the rupee fly off," said Sajal Gupta, head of forex and rates at Edelweiss Securities.
The rupee rose to as much as 63.59 per dollar, its strongest level since July 22, 2015, from its close of 64.0750 on Tuesday. It ended trade at 63.69.
Traders said the RBI decision on Wednesday to cut the repo rate had only a limited impact, given the decision had been widely expected. The central bank said any future action would depend on economic data.
The benchmark 10-year bond yield rose 2 basis points to 6.46 percent, with some traders saying they were disappointed by the RBI's cautious tone.
"The document lacked any guidance. There is no indication of future rate cuts," said a dealer at a foreign bank.
In share markets, the broader NSE index closed down 0.33 percent, while the benchmark BSE index ended 0.30 percent lower.