The gains have been more pronounced since February 8, the day the RBI in a surprise move decided to keep interest rate unchanged and also signalled a change in its policy stance from "accommodative" to "neutral" .
The rupee is trading at around 65.40 as against 67.90 in the beginning of January.
Foreign portfolio investors (FPIs) bought shares worth a net Rs 1,094.44 crore yesterday, as per stock exchanges data.
A weak dollar in overseas markets largely supported the upmove despite a sell-off in local stocks.
Forex dealers pointed to the recent improvement in sentiment as the impetus for the renewed vigour.
The approximate cost of printing each note of new Rs 500 is in the range of Rs 2.87 to Rs 3.09, and Rs 3.54 to Rs 3.77 for Rs 2,000, Minister of State for Finance Arjun Ram Meghwal said.
Forex market sentiment soared on hopes that BJP's stellar show in state polls would pave the way for the PM Modi government to focus on key reform measures.
PM Modi's victory in Uttar Pradesh strengthens his claim to a second term in national elections in 2019.
Forex market sentiment remained becalmed for yet another day, hampered by lack of key triggers amid general wariness ahead of the Federal Open Market Committee (FOMC) meet next week.
Some analysts say regulatory approval of a bitcoin ETF would make the currency relatively attractive to the often more cautious institutional investor market.
According to the Edelweiss Forex rates annual currency outlook 2017, the outperformance of the rupee is unlikely to continue and US weak dollar policy can create some downside pressure on USD/INR in the near term.
The rupee managed to sidestep the early volatility after the RBI's monetary policy committee maintained a status quo on repo rate amid widespread expectations.
Forex market sentiment turned highly buoyant after Finance Minister Arun Jaitley announced a fiscal deficit target that was in line with estimates along with proposal to further liberalize FDI policy.
Expectations of an economically balanced Budget by sticking to its fiscal consolidation path which will give room for the Reserve Bank of India to cut key rates along with robust capital inflows predominantly weighed on the local unit, despite a massive selloff in equities.
Extremely bearish greenback overseas and robust capital inflows predominantly supported the domestic currency after a tepid start.
Total forex exposure of these top corporates as at end financial year 2015-16 stood at Rs 19.5 trillion - the aggregate hedge cover of which was 36 per cent, the report said.
Mr Trump's first news conference since the November 8 election contained no details on tax cuts and infrastructure spending, two factors that had fuelled the five-week rally in stocks and a selloff in global bond markets.