The rupee ended steady on Thursday after trading in a tight range for much of the session, as gains in local equities and Asian currencies were offset by dollar buying from the central bank.
The local currency was underpinned by foreign inflows into equity markets for a third straight session. Overseas investors bought shares worth 1.92 billion rupees ($32.35 million) on Wednesday, provisional data from the exchange showed.
Broader gains were capped as the market focuses on the new government's policies which will be unveiled in the Budget, likely in early or mid-July.
Alongside, the Reserve Bank of India's frequent interventions in the forex market to stem sharper gains in the rupee, weighed on sentiment.
A Reuters survey showed long positions in the rupee fell by around a third as the central bank was spotted intervening to stem further strength in the best performing Asian currency so far this year.
The RBI's dollar purchases in the spot market and the corresponding paying in the forwards to mitigate the impact on liquidity have been pushing up the forward premiums. The one-year premium closed at 492 points, after hitting 497 points during the session, not far from a near two-month high of 506.25 points hit on Tuesday.
So far this year the rupee has strengthened on the back of strong foreign inflows into domestic markets, but investors are cautiously treading as they await the new government's fiscal policies which will be outlined in the Budget.
"The inflows will continue in the near term and may get better direction after the Budget. RBI doesn't seem to allow sharp appreciation of INR through
intervening," said Paresh Nayar, head of fixed income and foreign exchange trading at First Rand Bank, adding he expects the pair in a range of 58.50/60.00 in the coming weeks.
The partially convertible rupee closed steady at 59.33/34 per dollar per dollar after moving in a range of 59.2475 to 59.36.
In the offshore non-deliverable forwards, the one-month contract was at 59.54 while the three-month was at 60.13.