Reserve Bank of India Governor Raghuram Rajan said the central bank had tilted towards keeping rates on hold even before November consumer and wholesale price inflation data were released.
In an interview to television channel ET Now, he said when growth is weak, we have to be careful of "over-tightening".
"The governor's comments helped the rupee a bit. At least the market now thinks that the central bank will consider growth as well when framing monetary policy," said Hari Chandramgethen, head of foreign exchange trading at South Indian Bank.
"I expect some support for the dollar/rupee around 61.65 levels with the pair broadly holding in a 61.60 to 62.40 range until the year-end."
The partially convertible rupee closed at 61.9525/9625 per dollar compared with 62.04/05 on Friday. The rupee rose to as high as 61.8350 after Raghuram Rajan's comments, its highest level since Dec. 18.
Traders said gains in the domestic share market throughout the day also boosted sentiment for the rupee.
Indian shares edged higher as blue chips gained on continued foreign inflows despite last week's decision by the U.S. Federal Reserve to start reducing its bond purchases, although a fall in Infosys Ltd capped broader gains.
Dealers will continue to monitor movements in other Asian currencies and the euro for near-term direction in the absence of any major domestic factors, with volumes also lower on account of year-end holidays globally.
In the offshore non-deliverable forwards, the one-month contract was at 62.42, while the three-month was at 63.23.
* Indian rupee ends at 61.9525/9625 per US dollar vs 62.04/05 on Fri
* RBI Governor Raghuram Rajan's comments on weak growth cheer sentiment
* Indian rupee seen holding in 61.60-62.40 range till yr-end
FACTORS TO WATCH
* US dollar slips in thin trade, but Fed taper offers support
* Baht slips to near 4-yr low on political tumult
* U.S. growth hopes help shares shrugg off China money mkt jitters
* Foreign institutional investor flows