The rupee has gained less against the US dollar compared to many other Asian currencies in a year which saw a deluge of dollars, forcing many Asian countries to impose capital controls. Moreover, the RBI also did not intervene much during the year to influence the value of the rupee. However, the local currency is likely to come under pressure this year as global crude and commodity prices firm up.

An analysis of various Asian currencies that moved against the dollar showed that the rupee gained 3.4% against the dollar in 2010. While the Malaysian ringgit appreciated 11.8%, Thai Baht rose 11% and the Chinese yuan appreciated 3.06%, according to a Bloomberg data. However, the Korean won and the Indonesian rupiah outperformed.

These economies saw huge capital inflows and the consequent carry trade, but India, on the other hand, had a huge current account deficit guzzling the dollar, so the Indian rupee did not appreciate much on that account, said HDFC Bank chief economist Abheek Barua. Also, because of the restrictions on debt flows in India, we did not see much action on the debt side, for lack of appetite in debt markets in comparison to other emerging Asian economies.

As many advanced economies were flush with funds because of massive stimulus to revive their economies, a lot of money was flowing into emerging economies in Asia and Latin America. As a result, Asian economies such as South Korea, Indonesia and Taiwan took aggressive steps to curb the flows, which threatened to jack up currencies, push up inflation and jeopardize growth in the long-run. In October, the Thai government introduced a 15% tax on short-term inflows into its bond market. Earlier in June, Indonesia introduced quasi-capital control measures by making short-term investment less attractive to foreign funds.

Experts see a modest appreciation of the Indian rupee in the coming year, even if inflows surge, as inflation and current account deficit might act against a sharp rise in the partially-convertible currency. The rupee position as one of the top Asian performers in 2010 may not continue this year since both the current account deficit and inflation are likely to work against it, said Mecklai Financial Services assistant vice-president Rugved Dhumale. Rising commodities and crude prices will put further pressure on our current account deficit and inflation as imports and input costs will rise.

In this scenario, domestic growth and fiscal deficit will also be impacted adversely. However, if strong capital inflows continue, we may see this negative impact mitigated or even reversed, he explained. When inflation is high and interest rates continue to rise, rupee is expected to appreciate, said Samata Dafal ,senior analyst of Basix Financial services.