The Indian rupee surged by seven paise against the greenback on Monday after the Reserve Bank made money supply tight through a 0.50 per cent hike in Cash Reserve Ratio (CRR), amid strong equity markets.
Dealers said the hike, which will come into effect in two tranches of 0.25 per cent on April 26 and May 10, is likely to tighten money supply in the banking system and resulted in appreciation of the rupee against the dollar.
In fairly active trade at the Interbank Foreign Exchange (forex) market, the local currency resumed firm at 39.85/86 a dollar from its last close of 39.92/93 a dollar and later was quoted at 39.88/89 a dollar in late morning trade.
The measure, which would suck out liquidity to the tune of Rs 18,500 crore from the banking system, was taken by the central bank to tame inflation.
Asian stocks also rallied sharply in early trade while Indian benchmark Sensex spurted by 239 points at 1030 hours on Monday.