The rupee rises to 53.70/71 versus its close of 53.80/81 on Tuesday. The pair drops as low as 53.6650 in opening deals, its weakest since February 28.
Financial markets were closed on Wednesday for a regional holiday.
Traders say the cut in withholding tax on Indian bonds to 5 percent from 20 percent is continuing to boost sentiment for the rupee.
India cut tax rates for foreign investors on interest income from investments in government and corporate debt, hoping to attract more funding to bridge its current account deficit and polish its reformist credentials.
Traders expect 53.60 levels to be supported during the day with a broad range of 53.50 to 54.00 until the Reserve Bank of India's policy on Friday where it is widely expected to cut rates by at least 25 basis points.