The US Federal Reserve's surprise decision on retaining its stimulus programme helped the rupee surge 161 paise today and end at a more than one-month high of 61.77 against the dollar.
A sharp rise in local equities, capital inflows and fresh dollar sales by exporters and some banks in the wake of a weak US currency overseas also aided the rupee's surge.
The Fed unexpectedly kept its USD 85 billion bond-buying programme intact, making available liquidity for investing in emerging market assets, including local equities and bonds, and easing concerns about immediate capital outflows.
At the interbank foreign exchange market, the rupee started strong at 61.70 to the dollar from the previous close of 63.38 and moved between 61.64 and 62.10 before ending at 61.77, a level not seen since August 16.
The gain of 161 paise, or 2.54 per cent, was the biggest since August 29, when it rose 225 paise or 3.27 per cent.
The Fed decision sent the benchmark Sensex zooming over 684 points, or 3.43 per cent, to end above the 20K-mark at an almost three-year high of 20,646.64.
Foreign institutional investors picked up shares worth a net Rs 3,543.84 crore today, as per provisional data with the stock exchanges.
The dollar index was down by 0.15 per cent against a basket of six major global currencies.
The Fed's decision, along with the recent rise in the rupee, may give new RBI Governor Raghuram Rajan some room to manoeuvre monetary policy as he seeks to strike a balance between boosting economic growth and containing inflation.
"Post the Fed announcement, what can be expected from the new RBI Governor is a rollback of some of the recent measures to curb liquidity in defence of the rupee," said Amar Ambani, head of research at IIFL. "However, we see no change in repo rates."