The rupee ended at a near five-month low on October 7 after the Reserve Bank of India (RBI) shifted its policy stance to calibrated tightening’ from ‘neutral’, a move that caught market participants by surprise.

The local currency closed at Rs 96.78 per dollar, compared with the previous close of Rs 96.43. The rupee opened marginally higher at Rs 96.45 but fell as much as Rs 96.83 during the day, moving closer to its record low of Rs 96.98 per dollar.

The currency emerged as Asia’s worst-performing unit for the day despite the rate hike and the relatively hawkish stance adopted by the central bank.

Some traders said the RBI was present in the spot market around the Rs 96.55-per-dollar level to prevent a sharper depreciation in the currency and keep it from breaching a fresh record low. The central bank has been regularly intervening in the market over the past two weeks to prevent the rupee from weakening beyond the psychologically important Rs 97-per-dollar level.

Earlier in the day, the RBI raised the policy rate by 25 basis points to 5.50 percent. Governor Sanjay Malhotra explained that the term ‘calibrated tightening’ was intended to signal a milder form of monetary tightening, indicating that further rate hikes could remain on the table, although the pace may not be as aggressive.

At the post-policy press conference, Malhotra said the rupee was undervalued based on indicators such as the real effective exchange rate (REER), and that financial markets could sometimes be irrational.