The rupee declined further on Wednesday, as political turmoil in Greece has stoked fresh concerns about ongoing efforts to rein in the long-running debt crisis in the eurozone. The continued weakness in the rupee prompted the RBI to step in once again to try and arrest the slide in the Indian currency.

The rupee ended at 53.8275 per dollar after being as low as 53.8375 and as high as 53.4350. The Indian currency opened at 53.5450 as against the previous close of 53.15.

Credit Agricole said in a note today that the rupee is trading at attractive fundamental levels. The rupee has seen significant Real Effective Exchange Rate (REER) depreciation over the past eight months, which should allow India's current account position to stabilise in coming quarters, the French bank said.

The delay of GAAR also bodes well for foreign investors' purchase of Indian assets, Credit Agricole said. "These factors make the currency fundamentally attractive and recent positive policy moves suggest that the timing to buy the INR looks right," it said.

Credit Agricole expects spot USD/INR to fall to 50 by year-end.

It may be recalled that in early Tuesday trading, the rupee had advanced to the highest level in almost a week, extending the gains from the previous session, amid hope that the Government's move to defer GAAR by a year will boost FII inflows in the near term.

However, a fresh bout of heavy selling in the domestic as well as global equity markets, coupled with a sharp fall in global risky assets sent the rupee lower again by the close of trade.

The Indian currency strengthened in the mid-afternoon on Monday after Finance Minister Pranab Mukherjee said in the parliament that the general anti-avoidance rule (GAAR) will be implemented from next financial year instead of this fiscal year.

The earlier proposal was for an April 2012 rollout for GAAR. However, the Standing Committee has recommended that the GAAR be implemented, along with the Direct Tax Code (DTC), in April 2013.

It may be recalled that FII flows turned negative in April following three straight months of strong inflows as overseas investors were put off by the Finance Minister's proposal to introduce GAAR in Budget 2012-13.

The rupee is likely to rise as the Government's decision to defer the implementation of GAAR provisions by a year will revive FII inflows, Standard Chartered said on Monday. StanChart, which has a short-term FX rating of "neutral" on the INR, expects strong bidding interest from FIIs at the May 21 debt-quota auction.

On Friday, the RBI had announced measures to bolster foreign currency inflows following a sharp fall in the rupee.

The RBI has taken the following measures to ease foreign currency flows as also to enhance the availability of export credit in foreign currency:

1. Interest rate ceiling on Foreign Currency Non-Resident [FCNR (B)] deposits of banks has been raised from 125 basis points (bps) above the corresponding LIBOR/Swap rates to 200 bps for maturity period of 1 year to less than 3 years, and to 300 bps for maturity period of 3 to 5 years.

2. The ceiling rate on export credit in foreign currency, which was constraining the availability of credit to exporters in foreign currency has been deregulated by allowing banks to freely determine their interest rates on such credit.

These measures are aimed at augmenting foreign currency inflows to banks which in turn would facilitate their foreign currency loans to exporters, the RBI said on Friday.

However, Morgan Stanley warned that the risk of stress on India's Balance of Payments (BoP) persists. Inter-bank liquidity has already begun to tighten after reversal of seasonal improvement in April, Morgan Stanley said in a note.

Further renewed pressure on BoP coupled with the RBI's intervention to stem pressure on the rupee has aggravated the inter-bank liquidity tightness, Morgan Stanley said.

Since Nov. 2011, the BoP has moved into deficit, and the inter-bank liquidity deficit has remained above the RBI’s comfort range, according to the Wall Street investment bank.

Foreign capital outflows over the last couple of months have meant that the reserve money growth has decelerated, leading to an unintended tightening, Morgan Stanley said in the note.

Unless the Government initiates major policy action to cut spending and/or crude oil prices fall sharply, India will stay exposed to any potential slowdown in capital

inflows, increasing pressure on the exchange rate, which in turn, would keep domestic cost of capital high, Morgan Stanley said.

The euro weakened for an eighth day against the US dollar today, as Greek politicians struggled to form a new government, fueling concern about the nation's fate within the currency union.

The pound fell for a second day against the US dollar after a report showed that UK retail sales slumped in April, stoking speculation that the Bank of England will consider more stimulus measures at its policy meeting this week.