The rupee commenced lower at 53.77 a dollar from previous close of 53.67 a dollar and declined further to a low of 53.89 at the Interbank Foreign Exchange (Forex) market, following sustained dollar demand from importers, mainly oil refiners.
Hesitancy in local equities at initial stages and firm dollar overseas also weighed on the rupee.
Later, it bounced back on dollar selling by exporters and continued foreign funds inflow in stocks to an intra-day high of 53.62 before settling at 53.68, a loss of a mere one paisa.
Yesterday, it had risen by 14 paise or 0.26 per cent.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The rupee witnessed a volatile session where it traded weaker till mid session and witnessed sharp gains after the government raised the debt limit of FII's from USD 20 billion to USD 25 billion. The rise in government debt limit is positive for the rupee in the immediate term."
Earlier today, the Reserve Bank hiked FII investment limits in government securities and corporate bonds by USD 5 billion each, taking the total cap in domestic debt to USD 75 billion, with a view to bridging the current account deficit.
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Further liberalising the norms, the three-year lock-in period for foreign institutional investors (FIIs) purchasing government securities (G-Secs) for the first time has been done away with, RBI said.
Meanwhile, the Indian stock market benchmark BSE Sensex, which was in positive terrain in morning deals, closed down by 102.83 points or 0.51 per cent at one-week low levels.
Foreign Institutional Investors (FIIs) injected USD 151.52 million in equities yesterday as per Sebi data.
The dollar index was up by 0.10 per cent against a basket of six major currencies. (MORE)