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

Key points:

• The rupee is deteriorating against the US dollar.
• To reduce inflation in the United States, the Federal Reserve has raised interest rates to 4%.
• Both the US and Indian inflation rates are falling.
• RBI is expected to increase the interest rate by 25 bps in February 2023.
• An economic slowdown was observed in India during the most recent quarter.

Many economists anticipate a new era of economic growth beginning in 2023. Despite the global economic weakness, the American economy is showing signs of improvement. Even though India's GDP grew by 13.5% from the previous quarter, the value of the rupee did not change. Experts agree that once-yearly rather than quarterly growth is appropriate for India's economy. To improve the Indian economy, the Reserve Bank of India (RBI) has collaborated with other government agencies. The government's decision to raise interest rates and limit trade has helped the currency and the economy.

USD to INR Exchange Rates
Date	Open	High	Low	Close
01-Feb-23	81.77	82.01	81.67	81.77
02-Feb-23	81.71	82.27	81.63	81.71
03-Feb-23	82.05	82.32	81.78	82.05
06-Feb-23	82.23	82.84	82.23	82.23
07-Feb-23	82.76	82.90	82.61	82.76
08-Feb-23	82.74	82.88	82.49	82.74
09-Feb-23	82.66	82.68	82.41	82.66
10-Feb-23	82.53	82.66	82.34	82.53
13-Feb-23	82.51	82.77	82.49	82.51
14-Feb-23	82.60	83.02	82.57	82.60
15-Feb-23	82.89	82.93	82.74	82.83

At the moment, one U.S. dollar is equivalent to 82.46 Indian rupees. Prices this month were lower than they were in the second half of January when they were relatively stable. It exemplifies how far the rupee has come and demonstrates its potential for international recognition. February 14, 2023, saw the value of one rupee rise to 83.0165, a new all-time high. The value of one rupee hit an all-time low of 81.633 on February 2, 2023. Recent fluctuations in the value of the Indian rupee have us worried about the long-term health of the Indian economy and currency. The average daily flux over the past two weeks is 0.16 points. The government and the Reserve Bank of India (RBI), India's central bank, are working to keep the value of the rupee steady. Keep in mind that the status quo may persist for some time. Many other central banks worldwide have joined the U.S. Federal Reserve in responding to inflation by lowering interest rates.

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

More than 80% of India's crude oil requirements are typically met by countries like the United Arab Emirates (UAE), Russia, and Saudi Arabia. However, only about 10% of India's trade goes through its ports. Countries like Gabon, Colombia, and Canada have joined long-time suppliers like Nigeria and Iraq as sources of crude oil for India. The ongoing trade war between Russia and Ukraine, the global flu epidemic, and the global oil crisis all contribute to the rise in trade barriers. Now at a record $120, the price of a barrel of crude oil has skyrocketed. The cost of oil per barrel has fallen from $70 to $80. By the end of the second quarter of 2022-2023, India will have paid Brazil $722.54 million in exchange for Brazilian oil. More than 70% of the crude oil used in the United States comes from overseas.

As the table and graph below demonstrate, prices have decreased recently. From February 6 (when it was $72.25) to February 13 (when it was $80.62), 2023, a barrel of oil rose by $19. The price has increased since the beginning of the month. Today's crude oil is essential to our economy and way of life. A decrease in productivity in the workplace, price increases, and a depreciation of the Indian rupee are all possible outcomes.

Crude Oil (in USD)
Date	Open	High	Low	Close
01-Feb-23	79.06	79.73	76.05	76.41
02-Feb-23	76.79	77.24	74.97	75.88
03-Feb-23	75.92	78.00	73.10	73.39
06-Feb-23	73.23	74.51	72.25	74.11
07-Feb-23	74.57	77.60	74.35	77.14
08-Feb-23	77.49	78.57	77.08	78.47
09-Feb-23	78.45	78.84	76.52	78.06
10-Feb-23	77.68	80.33	77.47	79.72
13-Feb-23	79.94	80.62	78.45	80.14
14-Feb-23	79.06	79.61	77.46	79.06
15-Feb-23	78.83	78.96	77.57	78.42

2. Gold imports

Because of its widespread use in jewelry, gold carries significant symbolic meaning in India. The failure of the population of 2022 to amass gold reserves in advance of the pandemic was directly responsible for the subsequent panic. The Indian economy is suffering as inflation soars and gold imports increase. The government's response was a 15% increase in the already high 10.75% tax on gold imports. Low prices have more than compensated for the higher taxes, so people still buy gold despite the increase.

The accompanying table and graph illustrate the rise in gold prices. Gold's current $1834.9 is higher than the mean price over the last two weeks of January. From February 2nd to the 15th, 2023, gold fluctuated between $1959.10 and $1834.9. When gold is brought in from other countries, inflation quickly follows. The Federal Reserve should regulate the number of gold governments can purchase to control inflation.

Gold Rate (in USD)
Date	Open	High	Low	Close
01-Feb-23	1,927.20	1,955.00	1,922.00	1,927.80
02-Feb-23	1,952.30	1,959.10	1,911.30	1,916.30
03-Feb-23	1,912.40	1,917.00	1,861.50	1,862.90
06-Feb-23	1,865.60	1,880.00	1,863.40	1,866.20
07-Feb-23	1,870.00	1,875.70	1,868.00	1,871.70
08-Feb-23	1,872.10	1,880.40	1,872.10	1,877.40
09-Feb-23	1,875.30	1,884.60	1,859.80	1,866.20
10-Feb-23	1,861.60	1,863.50	1,852.40	1,862.80
13-Feb-23	1,859.00	1,861.00	1,850.00	1,851.90
14-Feb-23	1,854.10	1,862.00	1,846.20	1,854.00
15-Feb-23	1865.1	1870.9	1841.5	1834.9

3. GDP & Import/Export

The impact of the trade deficit on GDP can be seen in various ways and is influenced by several other factors. How much a country imports and exports can affect its currency's value and its economy's health. The value of a currency declines when imports exceed exports and improves when exports surpass imports—drops in currency value cause hardship for those who hold them. GDP will consequently decrease.

The following chart shows how challenging it is to predict the trade deficit. Particularly striking was the increase in the percentage of imports from India from March to July. But things are on the upswing now. There was a positive trade balance for the first time in 2022 in October and December. The trade deficit between India and the rest of the world widened by $8.7 million thanks to this surplus. The difference between exports and imports has always been noticeable. Whatever the case, September's positive delta is cause for optimism.

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
Apr-22	25.10	46.10
May-22	32.20	52.70
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

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

Countries that have trade deficits are compelled to devalue their currencies. It hurts how quickly and easily everyday tasks can be completed. Despite the currency's falling value, GDP increased from 5.4% in February 2022 to 13.5% in July 2022. India's economic development has been nothing short of remarkable. The Indian government is responsible for the plan's success. By 2023, the RBI anticipates a marked deceleration in growth. One can significantly learn about the state of the Indian economy and its future from this. After this trend has held for three consecutive calendar quarters, the currency's value will increase.

4. Inflation rates

In the event of a decline in GDP and an increase in inflation, a currency's value may rise or fall. The annual inflation rate in July was 6.71 percent, the lowest rate since January 2022 and lower than the 7.01 percent rate in June. In January of that year, the rate was 6.1%, but by January of the following year, it had risen to 6.52%. That can't be tolerated in light of the economy's substantial expansion. Given that these factors' are intertwined, pinpointing a single culprit for this variation is often a Herculean task.

India's Inflation rates
Date	Percentage
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	7.00
Sep-22	7.41
Oct-22	6.77
Nov-22	5.88
Dec-22	5.72
Jan-23	6.52

US Inflation rates
Date	Percentage
Jan-22	7.50
Feb-22	7.90
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

Significant inflation has been experienced by both the United States and India in recent years. Inflation in the United States reached a new record high of 9.1 percent in May 2022. The Federal Reserve raised the repo rate by 75 basis points to counter rising prices. Inflation in January 2023 hit 6.4%, the lowest level in three years. The United States performed better than India when measured against the Indian rupee.

5. Interest rates

To reduce inflation, the Reserve Bank of India raised the repo rate by 50 basis points in July 2022. The interest rate increased from 4.4% to 4.9%. With a higher repo rate, banks will demand higher interest rates on deposits and lend at higher rates to cover the cost. India has a widespread agreement that a hike in interest rates would benefit the economy. In 2020, a coronavirus pandemic caused the fastest-ever rate of 4%. The repo rate went up from 5.24 percent to 5.25 percent in August 2022, leading to a gain of 0.1 percentage point in September. Adjustment to the rate will take place in December 2022, with the new rate being 6.50%. After the Union Budget is presented in February, the general expectation is that the Reserve Bank of India (RBI) will raise the repo rate once again.

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

The Reserve Bank of India and the Federal Reserve of the United States have increased interest rates to combat rising prices. Incredibly, there was a 75% hike in the repo rate. As of October 2022, the interest rate is 4%. With things looking up, inflation has gone down as well. Interest rates will likely continue to rise for as long as the Federal Reserve believes it is necessary to preserve the strength of the U.S. economy, as this view is widely held. The decline of the Indian rupee against the U.S. dollar can be primarily attributed to the widening cultural and linguistic chasm between India and the U.S.

US Fed Interest Rates
Date	Interest Rate
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	0.2
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	4.00

6. Foreign and Domestic Investment

The level of foreign direct investment (FDI) rises with interest rate increases (foreign direct investment). The benefits and drawbacks of this scenario would be equivalent to those of any other case. By increasing its purchases of foreign currency, the Reserve Bank of India (RBI) hopes to devalue the rupee. The RBI's decision to increase the sale of foreign currency, which has increased the value of the rupee, will likely result in an increase of investment abroad of approximately $83 billion in 2022 compared to 2021. The RBI's asset value will exceed $100 billion by the end of the 2022-23 fiscal year. It might be the first step in the rupee's long, slow decline in value.

India's FDI
Date	FDI (US$ Million)
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
Jul-22	4971
Aug-22	2376
Sep-22	2974

The following graph shows that equity investments by foreign direct investment (FDI) companies tend to move in cycles. Revenues increased from March to April 2022 but dropped back to the $2,974,000.00 range by September 2022. As the Indian economy improves, foreign investment is expected to decline even further. In 2023 or 2024, both the Indian economy and the value of the rupee will see substantial gains.

The Finance Minister of India Says, "The dollar value rose. This will not affect the rupee's value." The second sentence makes sense. When it comes to maintaining economic stability, few organizations compare to the Reserve Bank of India (RBI) in India and the Federal Reserve System (Fed) in the United States. The value of the rupee and the Indian economy are vulnerable to global trends. It examines a wide range of factors, many of which are interrelated, to determine the cause of poor performance. But the government and the Reserve Bank of India are acting to bring things back under control. Collectively, we can strengthen the case for sustained economic expansion and currency stability through the year 2023.