The Indian rupee recovered after falling to its lowest levels in more than two years to trade at 66.85 to a US dollar during late-afternoon session on Friday.
The rupee, which opened at 66.93, fell to the day's low to 67.01 from its previous close of 66.66 to a greenback.
It was trading at 66.85 to a US dollar (at 3.45 p.m.).
The rupee had fallen to its lowest levels in the last 27 months on the back of sustained selling by foreign portfolio investors (FPIs) in the Indian equity and debt markets.
The FPIs went on a selling overdrive after Thursday's comments made by US Federal Reserve (US Fed) chairperson Janet Yellen which heightened the chances of a US rate hike in mid-December.
"Yallen's comments on the US rate hike and the upcoming US non-farm payroll data has had a negative impact on the Indian rupee and other emerging markets (EMs) currencies," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.
A US rate hike could potentially lead to massive amounts of pullback of foreign funds from emerging economies like India.
The data with stock exchanges showed that the FPIs sold stocks worth Rs.611.43 crore on Thursday.
The FPIs have taken out Rs.23,352 crore during the period August-September. In November, the foreign investors had off-loaded stocks worth over Rs.6,000 crore.
"Yesterday's announcement on the bond buying program was also a damper and added to risk aversion," Banerjee added.
Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS that the rupee stabalised after an apparent intervention by the Reserve Bank of India (RBI), which sold dollars through public sector banks (PSBs).
"It seems the RBI has interviened through PSU banks to stablise the rupee," Sharma said.
The Indian central bank is known to intervene in the open markets through PSBs by either buying or selling the greenback, if the rupee value comes under heavy attack.
Besides the RBI, Sharama pointed out that the rupee gained traction as market participants expected a major breakthrough on the goods and services tax (GST) bill was expected to be announced in the evening.
"Markets expect there might be a major breakthrough to get the GST bill passed in the parliament during the current winter session," Sharma added.
