The rupee's upward movement was aided by a good dose of dollar selling by exporters and some banks, amid a weak dollar overseas, said forex dealers.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced a tad higher at 54.75 a dollar from last Friday's close of 54.76 and soon touched a low of 54.82.
However, it quickly bounced back to a high of 54.42 before ending at 54.49 -- a rise of 27 paise or 0.49%. This is its best closing since 54.35 on January 2.
"Rupee started appreciating after WPI for the month of December eased to 7.18%. Government's decision to defer GAAR till April, 2016 also supported the positive sentiments in the market," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
Softer inflation number also brought cheer to market as expectations of rate cut were boosted, treasury official said. With GAAR delayed, rupee gained on hopes that fund flows would increase in the financial markets, they added.
Provisional BSE data showed FIIs have pumped in over R600 crore in Indian stocks on Monday.
The dollar index was down by 0.05% against a basket of six major currencies while New York crude oil was quoting above $94 a barrel in Europe today.
The premium for the forward dollar remained weak on sustained receipts by exporters.
The benchmark six-month forward dollar premium payable in June softened to 163-1/2-165 paise from last weekend's close of 164-166 paise. Far-forward contracts maturing in December also declined to 311-313 paise from 314-316 paise.
The rupee rebounded against the pound sterling to 87.72 from previous close of 88.23 while improved further against the Japanese yen to 61.01 per 100 yen from 61.65.
It, however, remained weak against the euro to 72.79 from last close of 72.61.