The rupee increased by 78 paise while ending at a nearly one-and-a-half year high of 65.82 against the US dollar after BJP's emphatic victory in Uttar Pradesh. Forex market sentiment soared on hopes that BJP's fascinating show in state polls would pave the way for the Modi government to focus on key reform measures.
The home currency resumed on a strong footing at 66.20 from last Friday's closing value of 66.60 at the Interbank Foreign Exchange (forex) market on heavy dollar unwinding from speculative traders and exporters tracking weekend developments.
Maintaining its bullish momentum against the dollar, the rupee hit a fresh intra-day high of 65.76 in late afternoon deals before ending at 65.82, showing a solid gain of 78 paise, or 1.17 per cent.
This is the highest closing of the rupee since November 6,2015 when it had ended at 65.76. Meanwhile, the RBI fixed the reference rate for the dollar at 66.1800 and for the euro at 70.4354.
Financial markets too took comfort from BJP's landslide victory, with the broader Nifty climbing 152.45 points to anew closing peak of 9,087 and the Sensex rallying 496.40points to end at 29,442.63.
The much-anticipated turnaround on the economic front has opened up a barrage of foreign capital fund flows into India. Foreign investors pumped in over Rs 10,000 crore in the Indian capital markets this month so far. It also got an added fillip from bullish macro data, which showed that the country's industrial production bounced back in January, expanding by 2.7 per cent year-on-year.
Factory output measured in terms of Index of Industrial Production (IIP) had contracted by 0.1 per cent in December. However, inflation based on wholesale prices shot up to a 39-month high of 6.55 percent in February against 5.25 percent in January, according to official data.
On the global front, the dollar traded firmly higher against its major counterparts ahead of the two-day Fed meet when it could lift rates for the third time since the financial crisis.