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The Indian rupee inched higher on Friday recovering from a decline to its lifetime low in the previous session that was spurred by weakness in the Chinese yuan and likely dollar outflows.

The rupee was at 83.61 against the U.S. dollar as of 10:00 a.m. IST, up from its previous close at 83.6525. The currency fell to a record low of 83.6650 on Thursday.

The offshore Chinese yuan fell to 7.29 on Friday, its lowest in seven months, after a lower central bank guidance for the currency on Thursday spurred market speculations that authorities may be prepared to see it weaken.

The rupee's decline to a record low came due to pressure from "multiple factors, including a weaker yuan, outflows and broad dollar strength against G10 currencies", said Apurva Swarup, vice president at Shinhan Bank.

Traders pointed to outflows on account of UK-based Vodafone Group's bigger-than-planned 18% stake sale in India's Indus Towers amid factors that hurt the local currency.

On Friday, mild dollar sales from foreign banks helped the currency tick higher, a foreign exchange trader at a state-run bank said.

The rebalancing of an FTSE equity index is expected to draw $250 million in inflows, according to Nuvama Alternative & Quantitative Research's estimate.

"Likely dollar sales by the RBI (Reserve Bank of India), inflows on account of inclusion in the J.P. Morgan EM Bond Index and rebalancing of the FTSE Index could cap losses (for the rupee)," HDFC Bank said in a note.

"We expect the pair to slip back into the 83.0-83.50 range over the coming month."

The dollar index was near 105.6 after rising 0.4% on Thursday boosted by a second successive rate cut at the Swiss National Bank and Bank of England's signals for a rate reduction in August.