Stocks have ended higher, breaking two sessions of declines, after the rupee recovered sharply on Wednesday after reports that the Prime Minister will review the economic situation over the weekend and that a rate hike is not ruled out.
The rupee gained the most in more than a year after touching an all-time low of 72.91 to the dollar in intra-day trades on Wednesday. The currency later closed at 72.18 - a huge gain of 51 paise.
The recovery triggered a rally in stock markets and the Sensex gained 304.83 points to close at 37717.96. Bond prices, which had been under pressure in recent times, also took a break with yields on the benchmark 10-year security dipping to 8.13 per cent against the previous close of 8.18 per cent.
The gain in forex, stock and bond markets was also helped by the Economic Affairs Secretary, Subhash Chandra Garg, who said the government and the Reserve Bank of India will do 'everything' to ensure that the rupee does not slide to unreasonable levels.
According to North Block officials, the agenda for the weekend stock-taking meeting has not been fixed yet.
However, they expect a series of measures could be discussed to cut imports and shore up the rupee.
While earlier attempts by the Finance Ministry to talk up the beleaguered rupee did not yield results, Garg's statement and the expectations surrounding Prime Minister's review meeting led to the unwinding of long dollar positions by exporters.
According to a report, the Finance Minister, Arun Jaitley, the NITI Aayog vice-chairman, Rajiv Kumar, the PMEAC chairman, Bibek Debroy and the Finance Secretary, Hasmukh Adhia, are among the officials likely to attend the meeting, scheduled for Saturday.
While the structure of the meeting is not known, sources said it might review macroeconomic indicators, government finances and the implementation of flagship financial inclusion and other development schemes.
Besides having an impact on the current account deficit, a falling rupee has made imports costlier and led to petrol and diesel prices skyrocketing.
In India's case since much of what it imports are either necessities such as crude and coal or influenced by cultural factors such as gold, it is difficult to slash imports.
The Finance Ministry has ruled out any cut in taxes on fuel to ease the burden on consumers, saying it does not have the bandwidth to lose any revenue without developmental spending being cut. They can ill-afford this in an election year.