The rupee posted its second biggest single day gain this year on Monday, appreciating by 37 paise to close at a fresh 17-month high of 65.04 on the back of panic selling by speculative traders and exporters. This is the highest closing for the rupee since October 28, 2015 when it had closed at 64.93, according to agencies.

The excess cash of Rs 3 to 4 lakh crore flooding the banking system is major hurdle for the Reserve Bank of India (RBI) to intervene in the market to arrest the rise of the rupee.

DBS said in a note, "The central bank has become wary of intervening actively to slow rupee's ascent for fear of stoking liquidity further. The rupee has therefore rallied nearly 4% this year, emerging as one of the best performers in the region."

Rupee opened strong on Monday having closed at Rs 65.25 on Friday. During the trade, it hit an intra-day high of Rs 65.01 in the afternoon before closing at Rs 65.04 to the dollar.

Prathamesh Mallya, chief analyst, non-agri commodities and currencies, Angel Broking, said in a note, "BJP's massive victory in the major state election has created good sentiments in the Indian market leading to appreciating rupee and higher equities. The USD-INR pair is trading close to one year highs as the party and its coalition partners won 325 seats against 403 seats in member assembly of Uttar Pradesh thereby increasing the chances of Modi's win in general elections of 2019.."

Bank of America said in a report that seasonality also pushes up the rupee at this time of the year. It said, "Seasonality typically strengthens the rupee in February to mid-April period. Summer and rains typically slow industrial production and exports and weaken the rupee in April-September. As the weather improves in October-March, higher production and exports appreciate the rupee."