The Indian rupee drifted higher against the U.S. dollar on Thursday, after the Reserve Bank of India slashed key rates unexpectedly and flagged a shift in policy to neutral from calibrated tightening to prop up the economy.

The Indian currency advanced to 71.23 against the greenback, its strongest since February 1. This marked a 0.7 percent gain from a 2-day low of 71.75 seen in morning deals. The pair closed Wednesday's trading at 71.60.

Next key resistance for the rupee is seen around the 70.00 region.

The Monetary Policy Committee, led by Governor Shaktikanta Das, decided to cut the repo rate by 25 basis points to 6.25 percent from 6.5 percent, the Reserve Bank of India said in a statement.

The reverse repo rate was trimmed to 6.0 percent from 6.25 percent.

Economists had expected the key rates to remain unchanged.

The MPC also decided to change the monetary policy stance from calibrated tightening to neutral.

The RBI said that these decisions were aimed to achieve the medium-term target for inflation goal of 4 percent within a band of +/- 2 per cent, while supporting growth.

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