The rupee ended the year with its biggest annual loss since 2008 as foreign capital took flight on growing concerns about India's current account deficit, its poorly performing stock market and an uncertain global economic outlook.
Only suspected intervention by the Reserve Bank of India (RBI) kept the rupee from falling sharply in the last few sessions, traders said.
Thin liquidity due to the end of the quarter and RBI curbs on speculation have amplified moves in the currency, they said.
A weak stock market and month-end dollar demand from oil importers, the biggest buyers of dollars in the local foreign exchange market, also weighed on the currency.
The rupee closed at 53.08/09 to the dollar, marginally down from Thursday's close of 53.07/08. For all of 2011, it closed down 15.8 percent, compared with a fall of 19.1 percent during the global financial crisis in 2008.
The rupee hit a record low of 54.30 on December 15, after which the RBI imposed curbs on banks' trading limits to help rein in speculation on the currency.
With India's economy showing clear signs of a slowdown and global markets still dominated by headlines about Europe's debt crisis, investors have pulled funds from riskier markets such as India, a trend that continued on the year's last trading day.
The key events to watch are the developments in euro zone, said Mohan Shenoi, head of treasury at Kotak Mahindra Bank in Mumbai.
The BSE Sensex fell 24.6 percent in 2011 to be the world's worst-performing major equity market.
Traders expect the rupee to strengthen in 2012 on improved fundamentals.
(The fiscal) fourth-quarter is seasonally a strong quarter for current account, said A. Prasanna, economist at ICICI Securities Primary Dealership.
Also, recent RBI measures to attract more inflows should help, he said. Finally, expect sentiment on India and rupee to improve by end of financial year on the back of the FY13 budget and start of monetary easing by RBI, he added.
Prasanna said he expects the rupee to touch 51.5 to the dollar in March.
As to whether they will intervene, I would expect the need for intervention will be lesser in 2012 compared to the current quarter, he said.
The $15 billion currency swap between India and Japan, announced late on Wednesday, did not provide much near term solace to the market, traders said.
One-month offshore non-deliverable forward contracts were quoted at 53.30, indicating more weakness was likely in the spot rate in the short-term.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were trading around 53.49, with the total volume at $2.9 billion.