The rupee strengthened by 12.7% in 2010 to average SRs12.1:US$1, buoyed by the success of economic reforms. The currency has remained stable in 2011 to date, averaging SRs12.3:US$1 in the first quarter (6.7% weaker year on year but around the same as the final quarter of 2010), underpinned by growth in tourism earnings and foreign-exchange reserves. The rupee has drifted higher since mid-2010, buoyed into 2011 by sustained dollar weakness (and euro strength-despite ongoing sovereign debt concerns-due to the European Central Bank raising rates). Although this may continue into 2011, the effect on the rupee is likely to be limited, owing primarily to Seychelles' gaping, if narrowing, current-account deficit and higher world oil prices. However, the large currency swings witnessed following the rupee's free flotation in October 2008 are unlikely during the forecast period, reflecting confidence in Seychelles' reform programme and the rebuilding of foreign-exchange reserves. These totalled US$240m in February 2011-equivalent to more than two months' import cover (compared with less than two weeks' at the height of the debt crisis in 2008)-although holdings remain below the recommended three months minimum. We expect the rupee to slide gently from SRs12.10:US$1 in 2010 to SRs12.30:US$1 in 2011, firming slightly in 2012 to SRs12.25:US$1 as the current-account deficit narrows, shocks notwithstanding.