At the Forex market, the domestic currency in early trade threatened to breach the 55-level as it slumped to 54.91, its fresh all-time low hit in the third straight session, as copious fund outflows continued amid Eurozone worries.
Dealers said strong dollar demand from importers, mainly oil refiners, on expectation of further rise in dollar on concerns caused rupee's fall.
However, RBI stepped in and stemmed the rupee's slide.
There was selling of dollars by public sector banks (at the instruction of RBI) which has supported rupee after falling to an intra-day low of Rs 54.91 level, said N S Venkatesh, Treasury Head, IDBI Bank.
The central bank's Deputy Governor Subir Gokarn in Kolkata today also said RBI will continue to intervene and take administrative measures to protect the rupee, boosting the sentiments in favour of the rupee.
"The approach over the last few months have been a combination of intervention at times when we have felt it will help us stabilise, and some administrative action. This is the approach that will work now," said Gokarn on the sidelines of an event here.
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Forex dealers also said that a sudden gush of dollar selling at the fag end by exporters amid recovery in local stocks aided the rupee recovery as the domestic unit touched a high of 54.40 before closing at 54.42. The currency has lost over 22 per cent against the dollar in the past one year.
However, experts do not feel rupee's woes against the dollar are over for now as the Indian economy continues to battle with fiscal as well as budget deficits and Greece's possible exit from Eurozone keeps fundamentals intact in favour of the American currency.
"It is difficult to say whether rupee is consolidating at the current level or will fall further as RBI is watching the market," said Viral Shah, Head - Institutional Business, Geojit Comtrade. (MORE)