Mumbai: India's rupee rallied the most in more than three weeks on optimism slowing inflation and prospects of an economic revival will attract capital inflows.
The currency rose 0.5 per cent yesterday to 54.19 per dollar in Mumbai, after touching 54.63 on Thursday, the weakest level since January 17, according to data.
The Dollar Index, which tracks the greenback against six major trading partners, retreated from a five-month high touched on Thursday. The currency rebounded from a one-month low as Brown Brothers Harriman said investors should consider purchasing the rupee as India's economic fundamentals are improving.
Inflation slowed to a three-year low of 6.62 per cent in January and the Reserve Bank of India cut interest rates last month for the first time since April.
The rupee slumped the most in six weeks yesterday after minutes from the Federal Reserve's last meeting issued February 20 showed several officials prefer varying the pace of buying bonds, raising concerns fund inflows into emerging markets will slow.
The rupee's one-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 45 basis points, or 0.45 percentage point, to 9.50 per cent this week.