The spot rupee strengthened to 130.40/50 per dollar in early trade on banks' selling of the greenback before retreating to 130.60/65 as a state bank, through which the central bank usually directs the market, bought the dollars for up to 130.60 rupees.
It closed at 130.63/65 per dollar on Thursday.
"Bank selling of (dollars) for festive demand strengthened the rupee. A state bank bought dollars probably for oil bills," said a currency dealer asking not to be named.
The local currency was steady at 130.70 per dollar for the six sessions through Wednesday as dealers were reluctant to trade the rupee beyond 130.70 per dollar through Wednesday due to moral suasion by the central bank.
But they said the depreciation pressure is expected to ease due to expected inflows from remittances that will prompt dollar selling by banks.
Dealers said lack of credit demand for imports will help reduce downward pressure on the rupee.
The currency has gained 0.34 percent since Feb. 27, but has lost 0.11 percent so far this year, Thomson Reuters data showed. (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)