The rupee touched two-month high of 61.47 against the US dollar in day trade before closing up by 12 paise at 62.06 on Thursday amid a rally in stock markets as RBI cut policy rate by 0.25 percentage points.
The rupee gained 71 paise to touch an intra-day high of 61.47 a dollar -- level not seen since November 13, 2014 --following a sharp rise in local equities.
The Reserve Bank slashed lending rate (repo rate) by 0.25% to 7.75% on softening inflation to revive the economic growth, which supported both the stock and the rupee.
Fresh dollar selling by exporters after the US dollar was trading weak by 0.24% against its major global rivals also aided the rupee recovery.
However, the rupee later dropped on renewed dollar demand from importers and some banks amid fresh capital outflows and it fell back to a low of 62.10 before concluding at 62.06, still showing a rise or 12 paise or 0.19%.
The benchmark BSE Sensex jumped by 728.73 points or 2.66% - logging biggest gains in last five years while FPIs sold shares worth Rs 69.74 crore on Wednesday, as per provisional data.
"RBI intervention as well as dollar short covering after Swiss National Bank removed the price band on currency hit the rupee towards end.
The trading range for the Spot USD/INR pair is expected to be within 61.70 to 62.70," Veracity Group CEO Pramit Brahmbhatt said.