The currency's relatively stable performance even as the U.S. announced tapering showed India's better preparedness to deal with any fallout of such foreign fund outflows.
For one, the Reserve Bank of India's two special concessional swap facilities have added $34 billion to forex reserves. At the same time, the government has said it would contain the current account deficit below $60 billion in the current financial year.
In fact, the rupee was supported on Friday by expectations of more foreign fund inflows as BSE Sensex stocks jumped 1.8 per cent, their most in nearly a month. Fund flows have been strong in December, both into equities and debt, totalling over $3 billion through Thursday.
"The rupee has gained after opening lower on account of capital flows and Sensex rising as the effect of tapering fade out and risk on sentiment dominates the market," said Anil Kumar Bhansali, vice president at Mecklai Financial.
The partially convertible rupee closed at 62.04/05 per dollar compared with Thursday's close of 62.14/15, snapping three days of losses.
In the offshore non-deliverable forwards, the one-month contract was at 62.55, while the three-month was at 63.37.
FACTORS TO WATCH
* Dollar extends rally after Fed, yen held back by BoJ
* Baht sets 3-year low as Asian currencies retreat
* European stocks inch up, euro dips on S&P downgrade
* Foreign institutional investor flows
* For data on currency futures