Mumbai

The rupee appreciated by 12 paise to 89.51 against the US dollar in early trade on Wednesday, supported by the Reserve Bank of India's (RBI) major liquidity announcement and weakness in the American currency overseas.

At the interbank foreign exchange market, the rupee opened at 89.56 per dollar, gained ground, and touched 89.51, up 12 paise from Tuesday's close of 89.63. In early trade, it also recorded a level of 89.65.

Forex traders said the rupee strengthened after the RBI announced liquidity infusion of around Rs 3 lakh crore to stabilize the markets and curb excessive rupee volatility. The central bank has also been actively managing the currency by buying dollars from the spot market to prevent sharp fluctuations.

“The dollar index was softer following strong US GDP growth of 4.3 per cent, and with Asian currencies generally stronger, the rupee has managed to claw back,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP. He added that the rupee is likely to trade broadly in the 89-90 range while the RBI protects both sides of the market.

The dollar index, which measures the greenback's strength against a basket of six major currencies, was down 0.07 per cent at 97.87. Brent crude futures were trading slightly higher at USD 62.39 per barrel, up 0.02 per cent.

On the domestic equity front, the Sensex rose 63.82 points to 85,588.66, while the Nifty gained 32.80 points to 26,209.95. Foreign Institutional Investors sold equities worth Rs 1,794.80 crore on Tuesday, according to exchange data.

READ MORE: India has made Christmas carols its own over time

The RBI said on Tuesday it will purchase government securities worth Rs 2 lakh crore and conduct a USD 10 billion dollar-rupee buy/sell swap auction to inject liquidity into the banking system. This follows recent liquidity measures, including Rs 1 lakh crore in government securities purchases and a USD 5 billion USD/INR swap auction for three-year tenor.