Scripting its second biggest single-day gain this year, the rupee today zoomed by 37 paise to close at a fresh 17-month high of 65.04 on the back of panic dollar selling by speculative traders and exporters.
This is the highest closing for the domestic unit since October 28, 2015 when it had closed at 64.93.
Expectations of more reforms that will boost long-term economic growth reinforced investor optimism including the much awaited labour, agricultural and banking reforms.
Robust capital inflows and weakness of the dollar against other currencies overseas predominantly boosted the rupee value against the dollar, a forex dealer said.
Foreign investors have pumped in about USD 6 billion in capital markets so far this month, buoyed by expectations that BJP's victory in assembly polls is a precursor to more "bold, reformist policies" in India.
Heightened volatility in greenback characterised foreign exchange market sentiment following the failed passage of the US healthcare reform through the US Congress last weekend.
However, worries of policy gridlock and the possible knock-on effects of that sent global financial markets into a tailspin which expect a radical pro-growth agenda.
Domestic equities couldn't find the magic and endured a massive sell-off on the back of profit-taking across the spectrum as investors preferred to remain cautious ahead of F&O expiry amid lack of support from global peers.
The home currency resumed on a firm footing at 65.27 from last Friday's closing value of 65.41 at the Interbank Foreign Exchange (Forex) market.
Maintaining its buoyant momentum, the local unit hit an intra-day high of 65.01 in late afternoon deals before ending at 65.04, showing a massive spike of 37 paise, or 0.57 per cent.
The RBI, meanwhile, fixed the reference rate for the dollar at 65.0892 and for the euro at 70.6739.
The US dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, plunged to a 4-month low of 98.75 in early trade.
In cross-currency trade, the rupee retreated against the British pound and finished lower at 81.89 from 81.68 per pound and softened against euro to settle at 79.67 from 70.66.
It also declined against the Japanese Yen to conclude at 58.99 per 100 yens compared with 58.90 last weekend.
Meanwhile, country's foreign exchange reserves surged by whopping USD 2.671 billion to USD 366.781 billion for the week ended March 17.
On the equity front, the flagship index dropped over 184 points to end at 29,237.15, while broader Nifty slipped 62.80 points to finish at 9,045.20.
In the forward market, premium for dollar displayed a steady trend in the absence of necessary buying support.
The benchmark six-month premium for August ended steady at 134-136 paise, while the far-forward February 2018 contract settled a tad higher at 286-288 paise from 284-286 paise on Friday.
The forex and money market will remain closed tomorrow on account of 'Gudhi Padwa'.
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