The rupee rose to its highest level in over four months on Friday after the government cut a tax for overseas borrowing by local companies, giving them access to cheaper funds.
The tax measure follows the opening up of the country's vast supermarket sector as well as the airlines industry, and has raised hopes of further reforms as the government seeks to revive growth.
The partially convertible rupee was at 53.60/63 to the dollar from its Thursday close of 54.385/395.
It rose to an intraday high of 53.44, its highest since May 11 and was set for a third successive week of gains.
"The global liquidity is already positive for the rupee. I see the current measures will lead to a continued rupee rally," said Satyajit Kanjilal, chief executive at Forexserve.
He expects the rupee to rise to 50.80-51 levels to the dollar in the near term.
The withholding tax on overseas borrowing by local companies will be reduced to 5 percent from 20 percent, Finance Minister P. Chidambaram said.
Forex dealers said the move will lower overseas borrowing costs for local firms and help more inflows.
Dealers are hoping that the government will push forward with more reforms including raising the cap for foreign players in the insurance sector.