The battered rupee gained 225 paise to 66.55 against the dollar on Thursday, the most in at least 15 years, after the Reserve Bank of India (RBI) eased pressure in the currency market by starting a facility for state-run oil refiners to buy foreign exchange.
The rupee, which closed at a record low on Wednesday, ended a three-day losing streak even as the dollar strengthened overseas and capital outflows continued. Fresh dollar sales by exporters on expectations of a further rise in the rupee also helped the local currency.
At the Interbank Foreign Exchange Market, the rupee opened at 66.90 to a dollar from the previous close of 68.80 and fell to a low of 67.92 on dollar demand from importers. It bounced back to 66.51 before ending at 66.55, a rise of 225 paise or 3.27 per cent.
The central bank had on Wednesday said PSU oil companies could buy dollars through a special swap window effective immediately. Indian Oil, Bharat Petroleum and Hindustan Petroleum are the biggest buyers of dollars, requiring about $8.5 billion every month to import an average 7.5 million tonnes of oil.
"The decision is aimed at removing a major source of dollar demand from the spot market," said Abhishek Goenka, CEO of India Forex Advisors. "The sustainability of this measure will be closely watched as the central bank had taken a similar measure in 2008, which provided short-lived relief."
Bank of America Merrill Lynch said in a report on Thursday that the RBI will have to take far more pro-active steps to rebuild forex reserves, because if the status quo remains, the rupee could touch 75 per dollar by the end of 2014.
The rupee's recent decline cast a shadow in Parliament too, with Opposition parties saying there was panic in the country. Prime Minister Manmohan Singh conceded the country faced a "difficult" economic situation and said he would make a statement on Friday.
The BSE Sensex, meanwhile, flared up by 405 points or 2.25 per cent, even as FIIs pulled out a net Rs 1,120.43 crore of stocks on Wednesday.
With inputs from PTI