The rupee is likely to appreciate further even as the forex reserves of the country is testing new highs every day.

According to forex market dealers, the currency is seen at around 44.50-80 by the end of March and at 43.75-44 against the dollar by December 2004.

The Reserve Bank of India is also expected to move towards more capital account convertibility, on the back of increasing reserves.

Forex reserves have risen by $30.54 billion in the last one year. The forex reserves touched $100.048 billion in December 2003 as against $69.508 billion on December 20, 2002.

In the last four weeks, forex reserves have been rising by more than $1 billion every week. During the week ended December 12, the reserves were at $98.950 billion. The reserves as on April 4 were at $75.040 billion.

A part of the rise can also be attributed to the strengthening of other major currencies such as euro, pound and yen against the dollar.

According to dealers, around 25-30 per cent of the rise in reserves could be due to the revaluation of reserves.

The euro, which was at parity with the dollar last year, closed at 1.2390 against the dollar on Friday. The forex reserves of the country are kept in a basket of currencies.

However, the exact component of the forex reserves are not known. According to Bank of India chairman and managing director M Venugopalan, dollar inflows have been robust as foreign institutional investors are pouring funds into the Indian stock market on hopes of good economic and industrial growth.

The reserves have also been buoyed by dollar remittances by non-resident Indians and exporters' bringing in their receivables.

Sumant Sinha, president and head, group corporate finance, AV Birla group, said, "The reserves will only go up because of the fundamentals of the Indian economy are very strong thereby propelling capital inflows. While the services sector is quite competitive, it is now up to the manufacturing sector to increase its competitiveness. This calls for keeping tariff barriers low in order to encourage FDI."

"The reserves are increasing because the economy is doing well. The game has just begun. In the next three-four months, the reserves could rise by another $15-20 billion. The rate of accretion would start stabilising or would go down as imports increase and economy starts picking up," says MA Ravi Kumar, regional head global market, StanChart.

According to Kumar, the rupee will touch 43.75-44 against the dollar in a year's time. "Exporters will have to be more efficient, become more innovative and find out new ways of marketing," he added.

"If the RBI does not intervene in the market, the rupee will appreciate from the current level. However to protect exporters' interests, the central bank may allow the Indian unit to rise only gradually," said Venugopalan.

Says ICICI Bank executive director Kalpana Morparaia, "With strong forex reserves, the RBI will look at more and more capital account convertibility. Also one way to create the demand is to go in for a bigger move of capital account convertibility."

"However, if we are to align the short-term interest rates, the arbitrage flows at the shorter end will come down," she added.

NRIs still receive 3.5 per cent interest rates on their savings bank accounts. Sumant Sinha, however, cautioned that India should keep in mind that other Asian countries also have equally healthy reserves.

RC Nandrajog, Tata Steel vice-president finance, adds, "Because of the strong reserve position, in the future we need not worry about the small ups and downs or a temporary blip in the economy."