The rupee on Tuesday rose 44 paise against the dollar to close at 50.73. This is after it posted its worst performance in a month on Monday.
Dealers said weakening of the dollar against global currencies and upswing in stocks brought the spring in the rupee. However the dollar demand from importers capped a sharper rise, they pointed out.
The dollar was weaker against some of the major currencies. The benchmark BSE Sensex rose 1.5% on Tuesday, joining a rally across Asian bourses.
"All fundamentals indicate that rupee would continue to be under pressure in the coming weeks," says Rugved Dhumale, associate vice president, Mecklai Financial. "Its unfair to expect the RBI to support India's worsening trade deficit by drawing on its forex reserves," he said.
The focus is now turning to the summit of Group of 20 leaders in London this week, with investors hoping that they may reach agreement on measures to help revive the global economy. Dealers say that statements made by global leaders here will determine the short term trend for the dollar and Asian currencies.
Bonds gained, snapping a seven-day loss, as rising yields encouraged fresh set of investors to enter the market. Banks and primary dealerships may have increased bond purchases after benchmark yields rose 64 basis points since March 18 to 7.08%. The yield on the 6.05% benchmark note due February 2019 fell 8 basis points to 7% at the end of the session.
India has little room for more fiscal measures to stimulate a slowing economy, but low inflation has created space for further monetary easing, a senior official of the Asian Development Bank said on Tuesday.
RBI announced on Tuesday that it has permitted trading in the power bonds maturing on October 1, 2013 and April 1, 2014, issued by various States to Central Public Sector Undertakings (CPSUs).
Banks parked close to Rs 17,000 crore with the central bank in its money market operations on Monday, while select banks also borrowed Rs 10,000 crore showing pressure on the cash situation in the system. The call money rate closed at 4.75%, off an early high of 5.75%, and above Monday's close of 3.75%.