The rupee posted its biggest percentage gain in two weeks on Thursday on hopes long-stalled reforms will pick up pace after Prime Minister Manmohan Singh asked officials to chart a revival in the economy and perk up investor confidence.
Singh, who has taken over the finance portfolio after Pranab Mukherjee's resignation, specifically said the government's immediate emphasis was to manage its balance of payments.
"It is good for sentiment. Now we have to see what measures are actually announced going forward," said Agam Gupta, head of forex, rates and credit trading at Standard Chartered Bank in Mumbai.
He said that the rupee may remain ranged till announcements emerge from the European Union summit and any measures are actually announced by the government.
India's Congress-led coalition, hobbled by pressure from its key allies, has put many much awaited reforms by foreign investors like opening up the multi-brand retail sector as well as the financial services sector on ice.
A move to retroactively tax foreign investors in the budget was also widely criticised as retrogressive.
Singh will seek within the next two to three weeks to clear up confusion over tax policy that has rattled investor confidence in Asia's third-largest economy, a government official said on Thursday.
Most analysts are now waiting for actual moves on the ground.
"In the near term this is not going to be a factor, but any structural reforms to address India's current and fiscal deficits are necessary to support the rupee," said Sacha Tihanyi, senior currency strategist at Scotia Bank in Hong Kong.
Global sentiments continued to remain cautious with the euro falling to a three-week low against the dollar on expectations that the EU summit will do little to address the region's debt crisis.
The rupee settled at 56.80/81, compared to Wednesday's close of 57.15/16. It gained 0.6 percent earlier in session, its biggest gain since June 15.
One-month offshore non-deliverable forward contracts were quoted at 57.22.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the United Stock Exchange and the MCX-SX all ended at 57.08. The total volume was at $3.5 billion.
