But the rupee has moved up by less than 5% over the dollar since 20 April. That’s very different from the behaviour of several other Asian currencies, which have moved up sharply. For instance, since that April peak of the dollar index, the Korean won is up almost 13% against the dollar, the Indonesian rupiah 16%. Currencies such as the Thai baht and the Malaysian ringgit, too, have appreciated more than the rupee.

Why isn’t the rupee going up, despite the robust FII inflows? ICICI Securities economist A. Prasanna points out that traders are positive on the rupee. He also says that intervention of the Reserve Bank of India is not to blame because it has been marginal.

The most probable reason is that, although portfolio flows have been good, other inflows may not be that robust. Recall that one of the main reasons for the rise in GDP in the June quarter was the increase in net exports, as imports fell more than exports. This quarter, though, it’s likely that imports have gone up and the trade balance is going to worsen.

Graphics: Ahmed Raza Khan/Mint

Perhaps the clue to the behaviour of the rupee lies in the fact that while South Korea and other countries of South East Asia are all expected to have current account surpluses this year and the next, the Asian Development Bank has forecast a current account deficit of 1.5% of GDP for India in 2009 and a deficit of 2% of GDP next year. That could account for the much lower appreciation of the rupee against the dollar.

Looking ahead, most analysts expect the rupee to appreciate, as external funding, such as external commercial borrowing, picks up. Kapur says the rupee usually strengthens during the second half of the year.

A recent Citigroup research note says Asian emerging market currencies are likely to continue to appreciate versus the dollar in the short and medium term, supported by a weakening dollar and by the recovery in the industrial economies, which should give exports a boost. Citigroup expects the rupee, Korean won and Indonesian rupiah to outperform their Asian peers.