The Indian rupee on Friday rose by 40 paise to settle at 70.94 to the US dollar after forex market sentiment was buoyed by the government decision to slash corporate taxes.
The news of lowering corporate tax rejoiced the equity market as well, but the bond market did not take the announcement very well.
Finance Minister Nirmala Sitharaman slashed corporate tax by almost 10 percentage points as the government looked to pull the economic growth out of six-year low.
At the interbank foreign exchange market, the local unit opened on a strong note at 71.19 and shuttled between a high of 70.68 and a low of 71.19 during the day.
The domestic currency finally settled at 70.94, higher by 40 paise over its previous close.
The local unit had settled at 71.34 against the US dollar on Thursday.
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On a weekly basis, the Indian rupee lost 2 paise.
"Indian rupee shines among Asian currencies amid corporate tax cut by the government. India's government unveiled a USD 20 billion plan that entails cutting tax on businesses to one of the lowest in Asia and supplements the central bank's interest-rate reductions to bolster economic growth from a six-year-low. Rupee expected to appreciate towards 70.70 a dollar in coming days," according to HDFC Securities.
Meanwhile, crude oil benchmark, Brent Futures on Friday was trading at USD 64.90 per barrel, higher by 0.78 per cent.
Foreign institutional investors (FIIs) were net buyers on Thursday, provisional exchange data showed.
The 10-year government bond yield was at 6.79 per cent.
Analysts opined that though the markets have reacted positively to the tax cut announcement, there are concerns over deteriorating fiscal situation, saying Rs 1.45 lakh crore revenue foregone through corporate tax break will add to the fiscal mess.
Hence, this may have negative impact on the rupee going ahead, they added.
Sitharaman announced cutting corporate tax rate to 25.17 per cent to bring it at par with other Asian countries such as China and South Korea but at the expense of potentially breaching the 3.3 per cent fiscal deficit target.
"The news of government lowering corporate tax has rejoiced the market, stocks rallied sharply with bank nifty posting its biggest single day gain in 10 years. This gave rupee a big boost and USD/INR spot dropped to 70.67," said Rahul Gupta, Currency Research Head, Emkay Global Financial Services Limited.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.15 per cent to 98.42.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.1382 and for rupee/euro at 78.5665. The reference rate for rupee/British pound was fixed at 88.6828 and for rupee/100 Japanese yen at 65.89.
In the domestic equity market, the 30-share index Sensex logged its biggest intra-day spike in over a decade and soared 2,284.55 points to a peak of 38,378.02, before settling 1,921.15 points or 5.32 per cent higher at 38,014.62.
Similarly, the broader NSE Nifty zoomed 569.40 points or 5.32 per cent to end at 11,274.20.