The rupee appreciated further on Thursday adding 106 paise to 66.01 against the dollar, after steps taken by new Reserve Bank of India Governor Raghuram Rajan to attract US currency inflows boosted market sentiment.
To support the rupee, Rajan on Wednesday announced steps such as enhanced limits for exporters to re-book cancelled forward exchange contracts and a special concessional window to swap foreign currency non-resident (FCNR) deposits.
The rupee started the day strong at 66 a dollar from the previous close of 67.07 at the interbank foreign exchange market and moved in a range of 65.54 to 66.52 before ending at 66.01, a rise of 106 paise or 1.58 %. On Wednesday, it had risen 56 paise.
"Rupee benefitted with a slew of constructive announcements from the new RBI governor," said Anindya Banerjee, currency analyst at Kotak Securities.
"However, the dollar bounced back as demand from importers surfaced."
The rupee also got support as Rajan's near-term agenda boosted stocks, with the benchmark S&P BSE Sensex shooting up 412.21 points or 2.22 %.
Foreign institutional investors bought a net Rs 172.53 crore of shares on Wednesday, as per provisional data with the stock exchanges.
Rajan announced plans to revise and strengthen the monetary policy framework and stressed the need for faster, broad-based, inclusive growth, among other steps.
Still, concerns remain about high inflation, growth slowdown, current account deficit and expectations of the US Federal Reserve easing its stimulus programme, said Pramit Brahmbhatt, CEO of Alpari Financial Services (India).
"To stabilise the rupee, we need to focus more on export revenue and inward remittances. Until that happens, the central bank can intervene through borrowed funds, but we can't sustain that kind of stability," said Brahmbhatt.
"The trading range for the spot USD-INR pair is expected to be within 65.50 to 67.00."