The benchmark Sensex shot up to an almost three-year high today,jumping 359 points as investors cheered the RBI decision to increase a key policy rate to tame inflation and at the same time enhance liquidity for banks.
The 30-share S&P BSE Sensex initially traded in a narrow range and surged after the RBI policy review to settle at 20,929.01,a gain of 358.73 points or 1.74 per cent. It was the highest close since the index finished at 20,932.48 on November 9,2010.
The rupee on Tuesday bounced back 21 paise,its biggest gain in more than two weeks,to close at 61.31 against the dollar.
The currency got a boost as stock market investors cheered the Reserve Banks steps. Fresh dollar sales by exporters amid sustained capital inflows also supported the gain.
The 50-share CNX Nifty on the NSE flared up 119.80 points,or 1.96 per cent,to end at an almost three-year high of 6,220.90. The SX40 on the MCX Stock Exchange closed 195.44 points higher at 12,445.13.
Central bank Governor Raghuram Rajan said it was important to break the spiral of rising price pressures to curb the erosion of financial savings and strengthen the foundations of growth.
The market agrees with Rajans decision that inflation must be tamed before we focus on growth, said Shrinivas Viswanath,co-founder of RKSV.
The rupee opened lower at 61.60 a dollar from the previous close of 61.52 and dropped to a low of 61.72. Later,it rebounded to settle at the days high of 61.31,a rise of 21 paise or 0.34 per cent. It was the biggest gain for the rupee since climbing 32 paise to 61.07 on October 11.