The Indian rupee was little changed on Friday as caution set in ahead of Prime Minister Narendra Modi's maiden budget, although the currency posted its biggest weekly gain in 1-1/2 months on strong foreign inflows.
The Reserve Bank of India was also spotted buying dollars, continuing its pattern of intervention to prevent the rupee from gaining sharply as strong foreign flows helped send the NSE index to its record high for a third straight day.
The rupee rose 0.6 percent for the week, posting its strongest gain since the week of May 16 that saw the election of Modi as prime minister, although the unit has ceded ground since hitting a three-week intraday high of 59.52 on Thursday.
The budget due to be presented on July 10 will be a key test of investors' faith in Modi and his Finance Minister Arun Jaitley, with markets expecting the government to deliver a fiscally prudent budget.
"The budget can very well have a huge impact on the market. Traders will be keenly watching how the government tackles the fiscal side problems and inflation," said Hari Chandramgethen, head of foreign exchange trading at South Indian Bank.
"The rupee is likely to trade in a range of 59.60 to 60.40 until the budget," he added.
The partially convertible rupee closed at 59.72/73 per dollar compared with 59.73/74 on Thursday.
Foreign institutional investors bought shares worth $886.24 million, including in primary markets, and debt worth $322.52 million on Thursday, regulatory data showed, taking total inflows in the year so far to $21.46 billion, across both the segments.
In the offshore non-deliverable forwards, the one-month contract was at 59.93, while the three-month was at 60.50.
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