The Indian rupee eked out gains on Wednesday after the country's central bank raised the key lending rate by an expected 25 basis points and hinted that more tightening was possible.
The rupee finished the session at 82.4925 per U.S. dollar after trading in an about 25 paisa range, as compared to its last close of 82.70.
The monetary policy committee (MPC) raised the repo rate to 6.50% in a split decision, with the central bank saying its policy stance remains focused on the 'withdrawal of accommodation'.
Most analysts had expected this hike to be the final increase in the RBI's current tightening cycle.
The terminal repo rate expectations have been between 6.50%-6.75% for a while, so this policy outcome was largely within expectations from the rupee point of view, said a foreign exchange trader.
Forward premiums, though, benefited from no change in stance, with USD/INR 1-year implied yield up 7 basis points to 2.17%.
"The April policy is likely to be a close call, depending on incoming inflation and growth data prints," said Gaura Sen Gupta, an economist at IDFC FIRST Bank.
"If inflation evolves as projected, the February rate hike could be the last one. However, if inflation pressures worsen or the Fed rate hiking-cycle extends, another 25 bps hike (from the RBI) can't be ruled out."
The RBI on Wednesday trimmed its fiscal 2023 inflation projections to 6.5%, from 6.7% earlier, and pegged the next financial year's growth at 6.4%.
Meanwhile, the dollar index slipped 0.3% after Federal Reserve Chair Jerome Powell did not meaningfully harden his tone on inflation in a speech overnight, as some market participants had expected after a robust U.S. jobs report.
Most Asian emerging market currencies and stocks were trading higher. (Reporting by Anushka Trivedi; Editing by Savio D'Souza)