Mumbai, Jun 6 (PTI) The rupee pared initial losses and appreciated 11 paise to close at 85.68 (provisional) against the US dollar on Friday, after the Reserve Bank cut repo rate by a higher-than-expected 50 basis points to prop up growth.

Forex traders said the rupee traded on a flat-to-positive note as the RBI surprised the market with a jumbo rate cut. Besides, the rate cut supported by a phased 100 basis points CRR reduction will lower the borrowing costs and boost growth.

Moreover, a surge in the domestic markets supported the rupee at lower levels with both the indices settling with gains of over 1 per cent.

At the interbank foreign exchange, the domestic unit witnessed heavy volatility. It opened at 85.91, registering a fall of 12 paise over its previous close. But soon pared the losses and saw an early high of 85.66 against the greenback.

During Friday's trade, the rupee also saw an intra-day low of 86 and finally settled for the day at 85.68, up 11 paise over its previous close.

On Thursday, the rupee snapped its two-day losing streak and closed 8 paise higher at 85.79 against the US dollar.

The RBI slashed interest rate by 50 basis points on Friday, a third consecutive reduction, and unexpectedly reduced the cash reserve ratio (CRR) for banks to provide a major liquidity fillip to support the economy amid geopolitical and tariff headwinds.

The central bank retained GDP growth projection for the current fiscal at 6.5 per cent.

It also changed its monetary policy stance to 'neutral' from 'accommodative', with Malhotra saying further action will depend on incoming data.

"The RBI policy decision today was pre-emptive and precise. The surprise CRR cut of 100bps despite a significantly high surplus liquidity signals a strong intent to fast-track transmission while the change in stance back to neutral reflects possible pause on future rate cuts," Anurag Mittal, Head of Fixed Income at UTI AMC said.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.25 per cent at 98.98.

Brent crude, the global oil benchmark, fell 0.26 per cent to USD 65.17 per barrel in futures trade.

"Any further rate cut by the RBI may also pressurise the rupee. However, a positive tone in the domestic markets may support the domestic currency at lower levels. Investors may now focus on the non-farm payrolls report from the US. USD-INR spot price is expected to trade in a range of 85.40 to 86.25," said Anuj Choudhary – Research Analyst at Mirae Asset Sharekhan.

On the domestic equity market front, the 30-share benchmark index Sensex recovered the initial lost ground and closed 746.95 points, or 0.92 per cent higher at 82,188.99, while the Nifty settled 252.15 points or 1.02 per cent up at 25,003.05.

Foreign institutional investors (FIIs) sold equities worth Rs 208.47 crore on a net basis on Thursday, according to exchange data. PTI DRR ANU ANU