The rupee appreciated eight paise to settle at 76.40 (provisional) against the US dollar on Wednesday following RBI's surprise rate hike ahead of the US Federal Reserve's policy decision.

At the interbank forex market, the domestic unit opened at 76.46 against the US dollar. It moved in the range of 76.17 to 76.58 during the session.

The rupee finally closed at 76.40, registering a rise of 8 paise over its previous close.

On Monday, the rupee had settled at 76.48 against the US dollar.

The forex market was closed on Tuesday on account of Id-Ul-Fitr.

The RBI on Wednesday after an unscheduled MPC meeting hiked the benchmark lending rate by 40 basis points (bps) to 4.40 per cent to contain inflation that has remained stubbornly above the target of 6 per cent for the last three months.

The Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das also raised the level of deposits banks are required to maintain as cash reserve by 50 bps to 4.5 per cent to suck out ₹87,000 crore of liquidity from the banking system.

The CRR hike will be effective from May 21.

The governor said the interest rate hike is aimed at strengthening, consolidating medium-term economic growth prospects. Overall commentary of the RBI governor was hawkish and that restricted losses for the rupee, said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

"But ahead of the important Fed policy statement we suggest that one must be cautious. Volatility for the USD-INR will continue to remain elevated and we expect it to quote in the range of 76.05 and 76.80," Somaiya said.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.01 per cent lower at 103.45.

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Foreign institutional investors were net sellers in the capital market on Monday as they offloaded shares worth ₹1,853.46 crore, as per stock exchange data.

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