For the week, the rupee rose 2.1%, its third consecutive weekly gain and also its biggest weekly rise since the week to September 13. Since January, the currency has risen 4.67% and is the second-biggest gainer in Asia after the Indonesian rupiah.
The strong gains come less than a year after India was gripped by its worst currency crisis since the balance of payment crisis in 1991. The rupee has appreciated 17.5% since the record low of 68.28 hit in August.
Analysts, however, warned that the gains could be at risk if the new government fails to live up to expectations.
“The to-do list is long and the ball is in the incoming government’s court to walk the talk on reviving growth and addressing macro challenges,” said Radhika Rao, an economist for DBS in Singapore.
“Clearly financial markets have gone far ahead of fundamentals,” said Ananth G Narayan, co-head of wholesale banking for South Asia at Standard Chartered.
Traders expect the rupee to hold in a 58.50 to 59.50 per dollar range for the next week.
A strong rupee makes oil and gold imports cheaper and helps in reining the current account deficit — the difference between inflows and outflows of a foreign currency. A weak rupee can hurt exports, push inflation and fuel interest rate hikes.