The rupee ended 18 paise lower to 54.14 against the dollar due to demand for the American currency.
On Thursday, the Indian unit had closed higher at 53.96 per dollar. The forex market was closed on Friday for Ram Navmi.
The unit opened marginally weaker at 54 on mild dollar demand from importers and a stronger dollar.
In the second session trades, the rupee declined to a low of 54.25 per dollar at the Interbank Foreign Exchange market. However, it recovered on the back of hopes of key interest rate cut by the Reserve Bank of India in its monetary policy review on May 3.
The rupee is likely to strengthen further due to inflows on expectations of repo rate (rate at which RBI lends short term funds to banks) cut that can help revive growth.
In addition, the domestic equity market also gained in the second half to close 153 points (up 0.81 per cent) at 19,170.
Call rates, G-Secs surge
The interbank call money rates closed higher at 7.60 per cent from their previous close of 7.40 per cent on Thursday. The call money market moved in the 7.25 to 7.70 per cent range during the day.
The 8.15 per cent government security, which matures in 2022, ended higher at Rs 102.54 from Thursday’s close of Rs 102.38, while yields softened to 7.75 per cent from 7.77 per cent.