The home currency resumed firmly higher at 64.05 from last weekend close of 64.15 at the Interbank Foreign Exchange (forex) market owing to heavy dollar selling by banks and exporters and traded in a tight range most part of the day.
Motilal Oswal, CMD, Motilal Oswal Financial Services, said the RBI's decision is an "almost a copy book event where street expected 25 bps and RBI Governor delivered 25 bps cut on the policy front".
The reverse repo rate was adjusted to 5.75 percent from 6.00 percent.
The dollar had briefly touched a 15-month low against a basket of major currencies on Tuesday, though it bounced modestly on Wednesday. The increased FPI participation has resulted in the rupee gaining by as much as 6 percent since January.
RBI noted that there are several uncertainties to the inflation trajectory such as farm loan waiver impact on state finances and maintained the neutral stance of monetary policy. The RBI, according to analysts is likely to introduce a 25-basis point rate cut.
"We look at the policy rate cut as a knee-jerk reaction to the current growth-inflation dynamics".
Besides, a smooth GST roll-out, expectations of subdued inflation and stable political environment buoyed the demand for the Indian currency.
Economists were widely split about whether the RBI would cut rates again.
Bekxy Kuriakose, Head (fixed income), Principal PNB Asset Management Co.: "To some extent the rate cut was factored in money market, bond and gilt yields".
The 10-year bond yield closed at 6.464%, compared to its previous close of 6.442%.
As an effect of the Reserve Bank of India's downward revision of the repo rate by 25 bps, the rupee has been trading at highest level since August 2015. Later, the rupee made a resounding recovery to touch a high of 63.59 following frantic dollar unwinding from speculative traders and foreign banks.