The Government's recent reform measures will boost capital inflows which will propel the rupee to rise up to Rs 51.5 against the dollar by end of the current fiscal, according to the Centre for Monitoring Indian Economy (CMIE).
"We expect the rupee to continue to strengthen in the second half due to strong capital inflows. It is expected to reach Rs 51.5 to the dollar by March," the city-based economic think-tank said in a note.
The Indian unit has been very volatile since August last year and moving either ways very rapidly. It is currently pegged at Rs 53.63 to the US currency.
However, the past two weeks have not been so good for the rupee, which has slipped below the Rs 53 levels.
The CMIE said the rupee gained 5.2 per cent within 10 days of the announcement of the reform measures and moved up to touch Rs 51.80 levels because of the increase in inflows.
In the fortnight to September 28, after the reform measures were announced on September 14, foreign institutional investors pumped in USD 3.7 billion into the country.
"The huge capital inflows provided a much needed boost to the rupee which was depreciating steadily for more than six months," it added.
The CMIE said it expects capital inflows to "increase steadily" during the remainder of FY13. The announcement of a third round of the liquidity-boosting quantitative easing by the US Fed and ECB will also help drive flows, it said.
"The inflows will not only be enough to fund the current account deficit, but also will add to the forex reserves," it said.
The reserves rose by USD 359.4 million to USD 295.23 billion for the week ended October 19.
The rising current account deficit - it touched a high of 4.2 per cent last fiscal - is one of the restricting factors being blamed for the anxiety within investors and holding the inflows.