The Indian rupee rose on Thursday as hopes for the election of a stable government swelled, although central bank intervention capped its gains.
Persistent dollar buying by state-run banks, which sometimes act for the central bank, exacerbated a cash dollar shortage, leaving discounts on most dollar forwards at historic highs.
The spot rupee closed at 44.6600/6700 per dollar compared with its previous close of 44.6800/7100. It was dealt between 44.6300 and 44.6800 through the day.
The rupee climbed after exit polls following the penultimate round of voting on Wednesday suggested the ruling pro-reforms National Democratic Alliance (NDA) may muster a majority to form a government strong enough to push ahead with reforms, which have lured investors to India over the past year and buoyed the rupee.
"The outcome of the election is the market's main concern, and worries have eased after yesterday's exit polls," said a trader at a state-run bank.
The polls projected the NDA to win between 245 and 282 seats in the 545-seat Indian parliament. It requires 273 seats to form a new government.
"The positive sentiment was reinforced by the rally in the stock market, as it has raised hopes that foreign investments could remain strong," the trader said.
The annualised discount on the six-month dollar was at a historic high of 1.13 percent, against 1.02 percent on Wednesday.