MUMBAI - The Indian rupee strengthened on Friday at the end of a volatile week, after the Reserve Bank of India raised the key lending rate by an expected 50 basis points, and a Reuters report on central bank measures to stabilise the currency, boosted gains.

The partially convertible rupee ended up 0.64% to 81.34 per dollar, having sprinted to a high of 81.16 during the session.

Two traders confirmed the jump happened after Reuters exclusively reported that RBI was encouraging state-run refiners to reduce dollar buying in the spot market and lean on a special credit line instead.

However, the unit closed 0.4% lower for the week, during which, it hit another record low of 81.95 per dollar. For the month, it fell 2.4%, its biggest percentage loss since the month of March, 2020.

The RBI's monetary policy committee raised the repo rate to 5.90%, its fourth hike in the current cycle, as India's annual inflation rate came above the central bank's target band for the eighth consecutive month in August, driven by surging food prices.

"RBI's MPC expectedly voted for a 50 bps hike, replicating the endeavour of global central banks to protect their currencies from prevalent volatility," said Amar Ambani, head of institutional equities at Yes Securities.

"Though the RBI's stance is more driven by domestic factors, the current landscape of aggressive rate hikes by the U.S. Federal Reserve and ensuing rupee weakness, will compel the RBI to closely follow the interest rate moves in the U.S.," he added.

The rupee has gone from trading under 80 per dollar to closer to 82 within two weeks, despite the central bank's occasional interventions. As of last week, India's foreign exchange reserves were down more than $100 billion from a year ago.

On the central bank's foreign exchange expenditure, RBI Governor Shaktikanta Das said the context of adequacy of reserves was always kept in mind while intervening.

Meanwhile, Indian equities rallied almost 2% after the rate decision, with banking stocks leading the charge.

(Reporting by Anushka Trivedi in Mumbai; Editing by Neha Arora)