The rupee retreated from a one-month high and was trading 5 paise higher at 68.38 against the greenback in late morning deals on bouts of dollar demand from importers and banks amid lower local equities.
It gained sharply to 68.26 before being struck by volatility as local stocks fell nearly 300 points. The rupee was still trading higher at 68.38 at 1030 hrs.
The Indian unit moved between 68.26 and 68.42 during morning deals.
The RBI raised repo rate by 25 basis points to 6.5 per cent amid inflationary concerns.
The RBI has maintained its neutral stance as well as growth outlook, it expects inflation will gradually taper, a dealer said.
Overseas, the US dollar held onto most of its gains against major peers in early Asian trade after the Federal Reserve gave an upbeat assessment of the worlds biggest economy and stayed on course to gradually lift interest rates.
Meanwhile, the 30-share BSE Sensex is trading lower by 223 points or 0.59 per cent at 37,298.43 at 1045 hrs.