Indian Rupee's Surprising Bounce: Will Bank of Japan's Interest Rate Hike Boost INR?

The Indian Rupee has made a strong comeback after hitting a record high of 91.07 against the US Dollar. For the third straight session, the Rupee appreciated and finished at 89.59, recovering over 1.60% from its record high. This recovery can be attributed to the Reserve Bank of India's aggressive selling of the US Dollar and the Bank of Japan's decision to hike interest rates.

Impact of Bank of Japan's Interest Rate Hike

The Bank of Japan's decision to increase interest rates is expected to put pressure on the US Dollar, leading to a pause in Foreign Institutional Investors' (FIIs) selling in the Indian stock market. This pause in selling could strengthen the Indian Rupee. According to experts, a strong Indian Rupee is crucial for the country's imports, with the average Dollar reserve for Indian imports being around 11 months.

Expert Insights

Avinash Gorakshkar, a SEBI-registered fundamental equity expert, believes that the Bank of Japan's interest rate hike will put the US Dollar under pressure, triggering a pause in FIIs' buying. Anuj Gupta, Director at Ya Wealth, thinks that this pause in selling will stop the outflow of US Dollars from India, subsequently strengthening the country's Dollar reserves.

Future Outlook

Anuj Gupta predicts that the appreciation in the Indian Rupee may continue, with the INR possibly reaching the 89 and 88.70 levels against the USD. Seema Srivastava, Senior Research Analyst at SMC Global Securities, believes that the Indian Rupee has remained relatively stable despite dollar strength, supported by robust foreign exchange reserves and manageable current account dynamics.

Indian Stock Market

The Bank of Japan's interest rate hike is expected to have a slow and measured impact on Indian equities. Seema Srivastava thinks that a soft-landing scenario with cooling inflation and moderate growth in the US will be supportive for risk assets, while any sharp rise in bond yields or renewed inflation fears could trigger short-term risk aversion across emerging markets.

Domestically, India continues to show strong GDP growth, improving private and public capex cycles, healthy banking system balance sheets, and reasonable earnings visibility across financials, infrastructure, and manufacturing. The Nifty 50 has rebounded from its recent low, increasing the probability of a gradual market rally.

Remember, this is a perspective and not a prediction. It's essential to do your own research and consult with certified experts before making any investment decisions.