Why is the USD to INR Exchange Rate down today on 15th September 2022 (1st half of September 2022)?

Most economists and analysts suggest that the Indian economy is gaining some stability. However, the rupee does not reflect its strength. In July, India recorded high GDP growth of 13.5%. It led to a reduction in the inflation rates. However, this growth phase has to last for at least three consecutive financial quarters to say that there has been a growth in the Indian economy. The Reserve Bank of India (RBI), along with the Indian government and other supporting agencies, have devised several tactics and measures to help bolster the Indian economy. Increasing the interest rates and imposing trade barriers are some of the tactics used by the government to support the currency and economy to gain momentum.

USD to INR Exchange Rates
Date	Open	High	Low	Close
01-Sep-22	79.55	79.84	79.28	79.55
02-Sep-22	79.72	80.09	79.59	79.72
05-Sep-22	79.72	80.03	79.66	79.72
06-Sep-22	79.78	79.97	79.71	79.78
07-Sep-22	79.90	80.14	79.80	79.90
08-Sep-22	79.65	79.95	79.64	79.65
09-Sep-22	79.71	79.94	79.45	79.71
12-Sep-22	79.66	79.74	79.33	79.66
13-Sep-22	79.36	79.59	79.02	79.36
14-Sep-22	79.60	79.81	79.38	79.60
15-Sep-22	79.45	80.02	79.43	79.45

From the above graph and table, one can infer that a dollar has equaled an average of 79.69 rupees, which is almost similar to the standard in August. This suggests that the rupee's performance has gained some stability. The rupee hit a bottom of 80.14 on the 7th of September 2022 and a peak of 79.02 on the 13th of September 2022. The exchange rate decreased from the 7th of September to the 13th of September. However, it has been increasing ever since. The dip on the 15th of September 2022, combined with the increased stability, can be seen as a positive sign. However, it is specious. The currency's value differed positively or negatively by an average of 0.08 rupee daily in the past two weeks(the 1st of September 2022 to the 15th of September 2022). Such a low variance shows the increased stability of the currency. The government and the RBI are doing everything in their power to help improve the currency's value. However, it will take time.

If the currency has to be solid and stable, there are so many factors that have to perform relatively well. They are:

1. Crude Oil

Several countries import crude oil likes of as the United Arab Emirates, Russia, Saudi Arabia, and so on. Due to the onset of the coronavirus pandemic and several unprecedented situations like the Russia-Ukraine conflict, trade barriers, forest fires, and global energy shortage, many countries found it difficult to procure crude oil to meet the demands of their people. This led to a stark high price where one barrel cost $120. This price has come down to an average of $80 to $90 per barrel. Though the price has come down, this price is still higher than the historical data. India imports more than 85% of its crude oil demand from other countries. Only 10 to 15% of the market is met by the crude oil obtained from the ports of Mumbai. In the first quarter of 2022-23, India imported 60.2 million tonnes of oil worth $47.5B. India has also diversified its sources of crude oil, as India has started to import oil from countries such as Brazil, Guyana, Gabon, Colombia, and Canada. India imported oil worth $722.54 M from Brazil in the second quarter of 2022-23. The US also depends on other countries for crude oil as they import more than 70% of their simple oil demand from other countries.

From the graph and table below, it is evident that the prices have been decreasing. However, there has been a rise in the cost from the 7th of September 2022. On the 6th of September 2022, the prices peaked at a value of $90.39 per barrel, whereas on the 8th of September 2022, the prices reached a low of $81.20 per barrel. Every manufacturing, transportation, and related industries depend highly on crude oil. Such costs can hinder production, raising inflation and devaluing the Indian currency.

Crude Oil (in USD)
Date	Open	High	Low	Close
01-Sep-22	88.83	89.63	85.98	86.61
02-Sep-22	86.56	89.66	86.35	86.87
06-Sep-22	86.84	90.39	86.18	86.88
07-Sep-22	86.93	87.76	81.50	81.94
08-Sep-22	81.91	84.25	81.20	83.54
09-Sep-22	82.80	87.20	82.71	86.79
12-Sep-22	86.25	89.10	85.16	87.78
13-Sep-22	88.09	89.31	85.06	87.31
14-Sep-22	87.94	90.19	86.18	88.48
15-Sep-22	88.91	89.15	84.53	85.10

2. Gold imports

Gold is one of the adorned metals all over the world. Indians attach a sentimental value to the metal. Since people could not purchase as much gold during the pandemic, they started to buy a lot more in 2022. This has affected the Indian economy severely because when gold imports increase, inflation also increases. The government tried to curb gold imports by increasing the import tax on gold from 10.75% to 15%. However, the low prices have matched the tax hike. Thus, people are still importing gold as they used to. This poses a worrying sign. From the graph and table below, one can see that the prices of gold have been decreasing. Gold costs $1706 per ounce, less than August’s average cost. On the 12th of September 2022, gold price reached a high of $1728.10 per ounce and a low of $1662.30 on the 15th of September 2022. The inflation rates increase with the increase in gold imports. Thus, the country needs to reduce gold imports.

Gold Rate (in USD)
Date	Open	High	Low	Close
01-Sep-22	1,707.90	1,707.90	1,693.90	1,696.60
02-Sep-22	1,703.40	1,715.70	1,703.10	1,709.80
06-Sep-22	1,709.70	1,717.40	1,699.70	1,700.40
07-Sep-22	1,694.80	1,715.30	1,694.70	1,715.30
08-Sep-22	1,718.20	1,718.20	1,705.30	1,708.00
09-Sep-22	1,719.20	1,720.00	1,712.80	1,716.20
12-Sep-22	1,727.40	1,728.10	1,727.40	1,728.10
13-Sep-22	1,720.50	1,720.50	1,697.30	1,705.00
14-Sep-22	1,698.70	1,701.80	1,696.50	1,696.50
15-Sep-22	1,685.50	1,686.00	1,662.30	1,665.40

3. GDP & Import/Export

The gross domestic product (GDP) and the import-export balance are interrelated. Both these factors affect the country's currency and economy—every country imports and export goods. When the imports exceed the exports, the value of the currency decreases, whereas when the exports exceed the imports, the value of the currency increases. When the currency's value drops, the currency's buying power decreases. The GDP, dependent on the currency's purchasing power and consumer spending and consumption rates, devalues the money when the buying power goes down. The graph below shows that the trade deficit gap has been widening unpredictably. From April 2022 to June 2022, the imports and exports had a linear growth making an almost negligible difference in the trade deficit. India had a shortage of $9.525M in June 2022. In the past, the exports have been higher than the imports; however, in July 2022, India's imports were higher than its exports. This poses a worrying sign.

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
Jun-21	20.30	10.84
Jul-21	19.36	11.39
Aug-21	20.46	11.87
Sep-21	21.61	12.58
Oct-21	19.85	11.61
Nov-21	20.14	12.59
Dec-21	25.31	14.89
Jan-22	21.63	13.24
Feb-22	21.30	12.97
Mar-22	26.95	15.35
Apr-22	22.59	14.05
May-22	23.61	15.20
Jun-22	25.29	15.77
Jul-22	20.2	22.3

GDP Rate in India
Date	Rate (%)
Jul-19	6.25%
Aug-19	6.00%
Jun-19	5.75%
Aug-19	5.40%
Oct-19	5.15%
Mar-20	4.40%
May-20	4.00%
May-22	4.40%
Jun-22	4.90%
Jul-22	13.5%

Since the country's imports are higher than its exports, the currency has lost its buying power. This has led to such a poor performance. Though the currency's value has decreased, the GDP has increased significantly from 4.9% in June 2022 to 13.5% in July 2022. India has had the highest GDP growth of all the world countries. This is due to the efforts of the Indian government and the RBI. The RBI expects the GDP to gain stability and growth by 2023. This is a very positive sign for the Indian economy. However, this growth must stay for three consecutive quarters for the currency to gain some value.

4. Inflation rates

The inflation rate is another contributing factor that affects the currency’s value. When the GDP decreases, inflation increases. It can be seen that inflation decreased from 7.01% in June 2022 to 6.71% in July 2022. However, it increased to 7% in August 2022. This does not correlate with the stark increase in GDP. Since all these factors are interrelated, it is hard to pinpoint the cause for this difference.

India's Inflation rates
Date	Percentage
Jul-21	5.59
Aug-21	5.3
Sep-21	4.35
Oct-21	4.48
Nov-21	4.91
Dec-21	5.66
Jan-22	6.01
Feb-22	6.07
Mar-22	6.95
Apr-22	7.79
May-22	7.04
Jun-22	7.01
Jul-22	6.71
Aug-22	7

US Inflation rates
Date	Percentage
Jul-21	5.4
Aug-21	5.3
Sep-21	5.4
Oct-21	6.2
Nov-21	6.8
Dec-21	7
Jan-22	7.5
Feb-22	7.9
Mar-22	8.5
Apr-22	8.3
May-22	8.6
Jun-22	9.1
Jul-22	8.5
Aug-22	8.3

Just like India, the US also experiences inflation. In May 2022, the US faced a record high inflation of 9.1%. To curb inflation, the federal reserve imposed a hike in the repo rate by 75 basis points. This has constrained the inflation rate, decreasing to 8.3% in August 2022. Since the US has performed relatively better in these parameters compared to India, the exchange rates are very high.

5. Interest rates

In July 2022, the RBI increased the repo rates by 50 basis points to curb the inflation rates. The interest rate increased from 4.4% to 4.9%. An increase in the repo rate leads to a rise in banks' lending and borrowing rates. Higher interest rates are believed to bring in a lot of cash inflow, which can help support the Indian economy. In 2020, the rates hit an all-time low of 4% due to the coronavirus pandemic. In August 2022, due to the increase in the repo rates, the interest rates have been increased to 5.4%. The RBI is expected to increase the repo rates further this year.

RBI Bank Interest Rates
Date	Rate (%)
Feb-19	6.25%
Apr-19	6.00%
Jun-19	5.75%
Aug-19	5.40%
Oct-19	5.15%
Mar-20	4.40%
May-20	4.00%
May-22	4.40%
Jun-22	4.90%
Jul-22	4.90%
Aug -22	5.40%

Like the RBI, the US Federal Reserve also increased the interest rate to help curb the rising inflation rates. They raised their repo rate by 75 basis points. As of August 2022, the interest rate has increased to 2.33%. This increase led to a reduction in the inflation rate from June to August. The stark difference in the performances of India and the US in these factors has led to such a bad performance of the Indian rupee against the dollar.

US Fed Interest Rates
Date	Interest Rate
Jul-21	0.10
Aug-21	0.09
Sep-21	0.08
Oct-21	0.08
Nov-21	0.08
Dec-21	0.08
Jan-22	0.08
Feb-22	0.08
Mar-22	0.20
Apr-22	0.33
May-22	0.77
Jun-22	1.21
Jul-22	1.58
Aug-22	2.33

6. Foreign and Domestic Investment

Due to the increase in the interest rate, foreign investments are expected to increase. This will have both advantages and disadvantages. That is, when the RBI purchases more foreign currency, the value of the rupee decreases, whereas, when the RBI sells more foreign currency, the value of the rupee increases. . In the financial year 2021-22, around $83B worth of foreign investments were made. The financial year 2022-23 will cross-assets worth more than $100B. This could only suggest that the value of the rupee is expected to depreciate further.

India's FDI
Date	FDI (US$ Million)
Aug-21	6233
Sep-21	4505
Oct-21	3719
Nov-21	4390
Dec-21	3911
Jan-22	6388
Feb-22	4617
Mar-22	4593
Apr-22	6459
May-22	6152
Jun-22	3978

The graph below suggests that the FDI equity inflow has been very volatile. While the influx increased from March to April, it decreased to a low of $3978 Million in June 2022. The FDI inflow is expected to decline unless the Indian economy regains stability. The Indian economy and currency will gain strength and momentum in 2023 or 2024.

Several factors affect the value of the Indian currency and economy. Since most of them are interrelated, it is hard to study and evaluate every element to pinpoint a cause for such a negative performance. However, the government and RBI are trying to restore the Indian economy. It is our responsibility to cooperate and ensure the currency's and economy's growth and stability by 2023.