The rupee consolidated in a narrow range and settled lower by 2 paise to 83.38 (provisional) against the US dollar on Friday after the Reserve Bank of India kept the policy rate unchanged at 6.5 per cent.
Forex traders said stronger American currency in the overseas markets and a rebound in crude oil prices weighed on investor sentiment.
At the interbank foreign exchange market, the local unit opened at 83.35 and finally settled at 83.38 (provisional) against the dollar, down by 2 paise from its previous close.
On Thursday, the rupee depreciated 4 paise to close at 83.36 against the US dollar.
However, positive tone of the RBI Governor and positive domestic markets may support the rupee, traders said.
The six-member Monetary Policy Committee, consisting of three RBI and an equal number of external members, voted unanimously to keep the benchmark repurchase rate at 6.5 per cent.
All but one of the panel members voted to keep the policy stance at "withdrawal of accommodation" in signs that rates may remain higher for longer.
The central bank raised its forecast for economic growth to 7 per cent from 6.5 per cent.
The governor also highlighted that "over-tightening" can also pose growth risks to the economy, and emphasised that it is not a signal that the policy stance was moving towards neutral.
The Indian rupee closed on a flat note after the Reserve Bank of India kept the policy rate unchanged, as per the market expectations, said Dilip Parmar, Research Analyst, HDFC Securities.
The rupee remained resilient to external shocks amid better macro environment, sustainable forex reserves and foreign fund inflows.
"We believe spot USDINR is expected to further consolidate in the coming days and wait for the US Fed policy decision for a clear directional move," Parmar added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.23 per cent higher at 103.78.
Brent crude futures, the global oil benchmark, advanced 2.27 per cent to USD 75.73 per barrel.
On the domestic equity market front, Sensex advanced 303.91 points, or 0.44 per cent, to settle at 69,825.60 points. The Nifty advanced 68.25 points, or 0.33 per cent, to 20,969.40 points.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Thursday as they offloaded shares worth Rs 1,564.03 crore, according to exchange data.