Snapping a two-day string of losses, the rupee today recovered to close 14 paise higher at 53.67 against dollar on Finance Minister P Chidambaram underlining the government's commitment to reforms and confidence about passage of key bills in the upcoming Budget session.
Consistent foreign funds inflow in stocks amid fresh dollar selling by exports and sustained weakness in dollar overseas also helped the rupee rise, forex dealers said.
At the Interbank Foreign Exchange (Forex) market, the local unit commenced strong at 53.68 a dollar from previous close of 53.81 and touched a high of 53.58 on the back of initial rise in domestic stocks.
However, fall in equities after mid-session pulled the rupee down to a low of 53.90. It later recovered in line with stocks to settle at 53.67, a rise of 14 paise or 0.26 percent.
The biggest threat to reforms in India is an unstable government at the Centre after 2014 elections, Chidambaram said today reaffirming government's commitment to reforms and confidence about passage of pension and insurance bills in Parliament's Budget session beginning next month.
According to a note by Bank of America Merrill Lynch, who co-hosted an investor conference with DBS, Chidambaram, who is on the second leg of his east Asia tour wooing foreign investment, said the goods and service tax (GST) regime is a major reform and hoped that the legislation would be approved by Parliament in the winter session in December this year.
Meanwhile, the Indian stock market benchmark BSE Sensex today closed up by 45.04 points or 0.23 per cent. FIIs bought shares worth USD 191.94 million yesterday.
The dollar index, a gauge of six major currencies, was down by 0.13 per cent as it lost ground against the euro following a better-than-expected survey of German sentiment.
"The rupee was seen gaining against the US dollar amid mild selling of dollars from the banks... Positive stock markets also lent support to rupee," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
The premium for the forward dollar dropped further on persistent receipts by exporters.
The benchmark six-month forward dollar premium payable in June dipped to 155-157 paise from previous close of 160-162 paise.
Far-forward contracts maturing in December also slipped to 308-310 paise from 315-317 paise.
The RBI has fixed the reference rate for the US dollar at 53.7710 and for euro at 71.5670.
The rupee also bounced back against the pound sterling to 85.09 from Tuesday's close of 85.37 and also rebounded against the euro to 71.57 from 71.86.
It, however, declined further against the Japanese yen to 60.76 per 100 yen from last close of 60.65.