Why is the USD to INR Exchange Rate Down today on 15th April 2023 (1st half of April 2023)?

Key points:

• The Indian rupee is strengthening against the US dollar.
• The Federal Reserve in the US has raised interest rates to 4% to combat inflation.
• Both the US and Indian inflation rates are decreasing.
• The Reserve Bank of India (RBI) is anticipated to increase interest rates by 25 basis points in February 2023.
• India experienced an economic deceleration during the previous quarter.

Economists predict that the Indian economy will experience different growth patterns beyond 2023. Despite the overall weakness in the global economy, the United States economy has shown signs of improvement. India's GDP surged by 13.5% in the last quarter, but the value of the rupee remained stable. Experts suggest that India's economy should grow annually rather than every quarter. In collaboration with other government agencies, the Reserve Bank of India (RBI) has implemented measures to enhance the Indian economy. The government's decision to increase interest rates and restrict trade has benefited the currency and the economy.

USD to INR Exchange Rates
Date	Open	High	Low	Close
03-Apr-23	82.18	82.49	82.18	82.18
04-Apr-23	82.14	82.28	82.08	82.14
05-Apr-23	82.11	82.24	81.84	82.11
06-Apr-23	81.95	82.12	81.81	81.95
07-Apr-23	81.83	81.88	81.77	81.83
10-Apr-23	81.88	82.04	81.76	81.88
11-Apr-23	81.98	82.15	81.92	81.98
12-Apr-23	82.07	82.13	81.94	82.07
13-Apr-23	81.96	82.10	81.63	81.96
14-Apr-23	81.68	81.94	81.47	81.68
15-Apr-23	81.80	81.80	81.79	81.79

Currently, the exchange rate between the US dollar and the Indian rupee is 82.02 rupees per dollar. The rupee has shown more stability in the second half of January compared to the first half. This highlights the rupee's progress and its potential to gain global recognition. However, recent fluctuations in the rupee's value raise concerns about the long-term health of the Indian economy and currency. On April 3, 2023, the rupee reached an all-time high of 82.49, but on April 14, 2023, it hit an all-time low of 81.63. The average daily change over the past two weeks has been 0.055 points. The Reserve Bank of India (RBI) is responsible for maintaining the stability of the rupee and works in collaboration with the government. It's worth noting that interest rates have been lowered by the Federal Reserve of the United States and other central banks worldwide in response to inflation.

Several parts must work well for the currency to be solid and stable. They are:

1. Crude Oil
2. Gold imports
3. GDP & Import/Export
4. Inflation rates
5. Interest rates
6. Foreign and Domestic Investment

1. Crude Oil

India relies heavily on countries like the UAE, Russia, and Saudi Arabia to meet over 80% of its crude oil needs, while only about 10% of Indian trade passes through its ports. To diversify its sources of oil, India has started importing crude oil from countries like Gabon, Colombia, Canada, Nigeria, and Iraq. However, global factors such as the trade war between Russia and Ukraine, the global flu epidemic, and the oil crisis have made doing business more difficult. Crude oil costs $120 per barrel, a new high, and has increased from $70 to $80 per barrel. Brazil will be paid $722.54 million for oil by India by the end of the second quarter of 2022-2023. In contrast, over 70% of the crude oil used in the United States is imported.

The table and graph below illustrate the recent fall in prices, with the price of a barrel of oil increasing by $4 between April 3 ($79) and April 12 ($83.53), 2023. Despite this increase, the price has risen since the beginning of the month. With crude oil being essential to India's economy and way of life, there could be potential consequences such as decreased work productivity, rising prices, and a decrease in the value of the Indian rupee.

Crude Oil (in USD)
Date	Open	High	Low	Close
03-Apr-23	80.10	81.69	79.00	80.42
04-Apr-23	80.44	81.81	79.61	80.71
05-Apr-23	81.01	81.24	79.72	80.61
06-Apr-23	80.37	80.96	79.65	80.70
10-Apr-23	80.50	81.22	79.61	79.74
11-Apr-23	79.88	81.59	79.37	81.53
12-Apr-23	81.44	83.53	81.28	83.26
13-Apr-23	83.22	83.44	82.11	82.16
14-Apr-23	82.40	83.12	81.76	82.50

2. Gold imports

Gold holds significant cultural and economic significance in India due to its everyday use in jewelry making. However, in 2022, people did not save enough gold before the pandemic, which led to panic. Rising gold imports and prices have negatively impacted the Indian economy. To counteract this, the government has increased the already high 10.75% tax on gold imports by 15%. Despite the increase, people still buy gold because the lower prices compensate for the tax hike.

The following table and graph demonstrate the rise in gold prices. Currently, gold is more expensive than in the final two weeks of March, with an average price of $2088.39. Between April 1 and April 14, 2023, gold is expected to cost between $1950.00 and $2048.60. When foreign gold enters India, it can quickly lead to inflation. To prevent inflation from spiralling out of control, the Federal Reserve should consider limiting the amount of gold governments can purchase.

Gold Rate (in USD)
Date	Open	High	Low	Close
03-Apr-23	1,968.10	1,991.70	1,950.00	1,983.90
04-Apr-23	1,984.60	2027.10	1,979.00	2022.20
05-Apr-23	2022.10	2,033.80	2,013.60	2,020.90
06-Apr-23	2,022.20	2.023.30	2.005.00	2.011.90
10-Apr-23	2,000.00	2,006.60	1,984.00	1,989.10
11-Apr-23	1,991.40	2,006.50	1,991.40	2,004.80
12-Apr-23	2,005.20	2,025.70	2,005.20	2,010.90
13-Apr-23	2,015.60	2,048.60	2,015.60	2,041.30
14-Apr-23	2,041.00	2,047.80	1,995.00	2,002.20

3. GDP & Import/Export

The impact of a trade deficit on GDP can vary depending on multiple factors. The amount of goods and services a country buys and sells can influence its currency's value and its economy's overall health. When imports exceed exports, the value of the country's currency decreases, which can create challenges for those holding that currency. This can also lead to a decrease in GDP.

The following graph highlights the difficulty in predicting trade deficits. It is interesting to note that from March to July, the share of Indian imports increased. However, there has been improvement in this area. In October and December of 2022, India had a positive trade balance for the first time that year. Despite this surplus, India's trade deficit with the rest of the world increased by $8.7 million. The gap between exports and imports has always been significant. Although things may not always go as planned, the positive delta in September is a reason for optimism.

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
Jun-22	24.60	45.50
Jul-22	20.20	22.30
Aug-22	24.30	27.10
Sep-22	29.7	28.10
Oct-22	24.60	15.90
Nov-22	30.70	21.70
Dec-22	20.40	5.70
Jan-23	29.60	7.50
Feb-23	28.80	10.80

When a country experiences a trade deficit, it becomes necessary to decrease the value of its currency. This can harm the efficiency of everyday tasks. Despite the devaluation, India's GDP showed impressive growth, rising from 5.4% in February 2022 to 13.5% in July 2022, it later fell to 4.4% in January 2023.

GDP Rate in India
Date	Rate (%)
Jul-21	20.10
Oct-21	8.40
Feb-22	5.40
Jul-22	13.50
Oct-22	6.30
Jan-23	4.40

The Indian government worked hard to achieve this remarkable economic growth, which provides valuable insights into the future of the Indian economy. The RBI predicts a slowdown in growth by 2023. The currency's value will increase if this trend continues for three consecutive quarters.

4. Inflation rates

A country's currency value can be affected by changes in GDP and inflation rates. In July, the annual inflation rate was at 6.71%, which is the lowest it has been since January 2022. This is a decrease from the 7.01% rate in June. In January of the same year, the inflation rate was 6.1%, which decreased to 5.66% in March of the following year. The relationship between GDP and inflation is complex and often interrelated, making it difficult to identify a single cause for the rate differences. These fluctuations occur periodically, and due to the significant economic growth, they can only be expected to happen occasionally.

India's Inflation rates
Date	Percentage
Mar-22	6.95
Apr-22	7.79
May-22	7.04
Jun-22	7.01
Jul-22	6.71
Aug-22	7.00
Sep-22	7.41
Oct-22	6.77
Nov-22	5.88
Dec-22	5.72
Jan-23	6.52
Feb-23	6.44
Mar-23	5.66

US Inflation rates
Date	Percentage
Mar-22	8.50
Apr-22	8.30
May-22	8.60
Jun-22	9.10
Jul-22	8.50
Aug-22	8.30
Sep-22	8.20
Oct-22	7.70
Nov-22	7.10
Dec-22	8.00
Jan-23	6.40
Feb-23	6.00
Mar-23	5.00

Inflation rates have recently been elevated in both the United States and India. In May 2022, the inflation rate in the US hit a record high of 9.1%, prompting the Federal Reserve to increase the repo rate by 75 basis points to curb rising prices. However, by March 2023, inflation had decreased to 5.0%, the lowest in three years. The US economy appeared to fare better than India's compared to the rupee's value.

5. Interest rates

In July 2022, the Reserve Bank of India increased the interest rate by 50 basis points to reduce the cost of goods, causing the rate to increase from 4.4% to 4.9%. This increase means banks will charge higher interest rates on deposits and lend at higher rates to cover costs. A majority of Indians support the idea of raising interest rates as a way to benefit the economy. The coronavirus pandemic led to the fastest rate of population decline in India, with 4% of the population dying in 2020. The repo rate rose from 5.24% to 5.25% in August 2022, with a further 0.1% increase in September. However, the interest rate increased to 6.50% in December 2022. Many believe the Reserve Bank of India will raise the repo rate again after the Union Budget is presented in February.

RBI Bank Interest Rates
Date	Rate (%)
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	5.40
Aug-22	5.40
Sep-22	6.15
Dec-22	6.50

As prices have increased, both the Reserve Bank of India and the Federal Reserve of the United States have raised interest rates. The repo rate has increased by 75%, which is considered significant. Currently, the interest rate is 4.83% as of March 2023, and inflation has decreased as the economy has improved. The Federal Reserve is expected to continue raising interest rates to maintain a strong US economy, which is a widely held belief. The Indian rupee is losing value against the US dollar mainly due to the increasing cultural and linguistic differences between India and the US.

US Fed Interest Rates
Date	Interest Rate
Oct-21	0.08
Nov-21	0.08
Dec-21	0.08
Jan-22	0.08
Feb-22	0.08
Mar-22	0.2
Apr-22	0.33
May-22	0.77
Jun-22	1.21
Jul-22	1.58
Aug-22	2.5
Sep-22	3.25
Oct-22	4
Mar-23	4.83

6. Foreign and Domestic Investment

When interest rates increase, there is typically a corresponding increase in foreign direct investment (FDI). This scenario has its own set of advantages and disadvantages. To lower the rupee's value, the Reserve Bank of India (RBI) plans to purchase more foreign currency. By selling more foreign currency and thus increasing the value of the rupee, the RBI expects to see about $83 billion more foreign investment in 2022 than in 2021. The RBI's assets are projected to surpass $100 billion by the end of the 2022-2023 fiscal year, potentially leading to a gradual decrease in the rupee's value over time.

India's FDI
Date	FDI (US$ Million)
Jan-22	6388
Feb-22	4617
Mar-22	4593
Apr-22	6459
May-22	6152
Jun-22	3978
Jul-22	4971
Aug-22	2376
Sep-22	2974
Oct-22	3013
Nov-22	2411
Dec-22	4411

The provided graph illustrates the trend of companies investing directly in foreign countries (FDI) to purchase stocks in cycles. The sales of these stocks rose between March and April 2022, but by December of the same year, the sales had declined to about $4,411,000.00. Foreign investment is predicted to continue to decrease as India's economy improves. However, the Indian economy is expected to make significant progress, and the value of the rupee is expected to increase by 2023 or 2024.

India's Finance Minister stated that despite the increase in the dollar value, the rupee's value would not be affected. The second sentence is a logical conclusion to this statement. The effectiveness of economic stabilization in India is primarily attributed to organizations rather than the Reserve Bank of India (RBI) or the Federal Reserve System (Fed) in the United States. The value of the rupee and the Indian economy are influenced by global events and multiple interconnected factors currently impacting the economy's performance negatively. Despite this, the government and the RBI are implementing measures to restore stability. By working together, there is a higher chance of continued economic growth and currency stability until 2023.