The Indian Rupee staged a powerful recovery this week, bouncing back sharply after hitting a record low against the US Dollar. The currency closed at 89.59 on Friday, marking its third consecutive session of gains and appreciating over 1.60% from its all-time low of 91.07. This rally has been fueled by a combination of strategic domestic intervention and a significant global monetary policy shift.
RBI Action and a Global Policy Pivot Drive Rally
Market experts point to two primary catalysts for the Rupee's strength. Initially, the Reserve Bank of India (RBI) aggressively sold US Dollars in the market on Wednesday and Thursday, providing immediate support. The momentum was supercharged on Friday by a landmark decision from the Bank of Japan (BoJ) to increase interest rates, a historic move away from its long-standing ultra-loose policy.
Avinash Gorakshkar, a SEBI-registered fundamental equity expert, explained the global ripple effect: "The Bank of Japan's rate hike is historic and will put the US Dollar under pressure. This could trigger a pause in the buying of dollars by Foreign Institutional Investors (FIIs), who have been net sellers in Indian equities since July 2025. If FII selling pauses, the RBI may not need to sell more dollars aggressively."
Implications for FII Flows and Dollar Reserves
A pause in FII outflows is critical for the Rupee's stability. Anuj Gupta, Director of Ya Wealth, elaborated on the mechanism: "A halt in FII selling would stop the outflow of US Dollars from India, thereby strengthening the country's dollar reserves. It's noteworthy that India's import cover has decreased after the Rupee's recent decline." He highlighted that the INR has fallen around 6% year-to-date, reducing the buffer for essential imports like crude oil.
Gupta is optimistic about the continuation of the appreciation trend, suggesting the Rupee could soon test levels of 89 and 88.70 against the US Dollar.
Stock Market and Broader Economic Outlook
The impact of the BoJ's decision extends beyond the currency market to Indian equities. Seema Srivastava, Senior Research Analyst at SMC Global Securities, provided a nuanced view: "Japan’s rate increase signals a gradual global shift, which may tighten liquidity and raise volatility in carry trades. However, its impact on Indian equities is expected to be measured rather than disruptive."
She emphasized that India's domestic fundamentals remain robust. "India stands out with strong GDP growth, improving capex cycles, healthy banking systems, and reasonable earnings visibility in key sectors," Srivastava added. She also noted that stable commodity prices, especially crude oil, are a positive for controlling inflation and fiscal pressure.
Commenting on the technical rebound in the stock market, she stated, "The Nifty 50's rebound from the 50-day Exponential Moving Average support increases the probability of a gradual rally. However, sustainability will depend on stable global conditions and consistent domestic earnings, not just liquidity."
Disclaimer: This analysis is for informational purposes only. The views are those of individual analysts. Investors are advised to consult certified experts before making any investment decisions.
