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

Key points:

• The value of the Indian rupee has dropped against the dollar.
• The Federal Reserve of the United States has implemented a policy to increase interest rates up to 5% with the aim of curbing inflation.
• The inflation rates in both the United States and India are currently experiencing a downward trend.
• According to market projections, there is an anticipated 25 basis point increase in interest rates by the Reserve Bank of India (RBI) in February of 2023.
• India's economy experienced a positive growth trend in the previous quarter.

Economists anticipate that India's economic growth trajectory will undergo a transformation post-2023. Notwithstanding the global economic downturn, the economic conditions in the United States have exhibited indications of progress. The latest quarter saw a 13.5% growth in India's Gross Domestic Product (GDP). However, the value of the rupee remained stable. Experts tend to favor annual measurements of India's economic growth over quarterly ones. The Reserve Bank of India's (RBI) collaborative efforts with other governmental entities have resulted in favorable outcomes for the Indian economy. The economy and currency have experienced a positive impact due to the government's recent actions of increasing interest rates and implementing trade restrictions.

USD to INR Exchange Rates
Date	Open	High	Low	Close
Jun 01, 2023	82.6668	82.712	82.3145	82.6668
Jun 02, 2023	82.2767	82.4318	82.2345	82.2767
Jun 05, 2023	82.4098	82.6845	82.381	82.4098
Jun 06, 2023	82.5112	82.648	82.4765	82.5112
Jun 07, 2023	82.5172	82.6224	82.467	82.5172
Jun 08, 2023	82.6181	82.6468	82.469	82.6181
Jun 09, 2023	82.4883	82.5208	82.413	82.4883
Jun 12, 2023	82.4448	82.5553	82.3854	82.4448
Jun 13, 2023	82.3372	82.4903	82.152	82.3372
Jun 14, 2023	82.2904	82.325	81.931	82.2904
Jun 15, 2023	82.045	82.2632	81.936	82.045

As of the latest market data, the USD/INR exchange rate stands at 82.48, indicating the value of one United States dollar in Indian rupees. During the latter half of the current month, the rupee has exhibited higher stability than the initial half. The recent market performance of the rupee showcases its positive trajectory and potential for growth in the global economy. The Indian economy and currency's long-term health concerns have been further intensified by the recent fluctuations in the rupee's value. The rupee experienced a peak value of 82.712 on June 1, 2023, and a trough value of 81.931 on June 14, 2023. The asset in question has exhibited a daily average volatility of 0.052 points over the previous 14-day period. The Indian government and the Reserve Bank of India (RBI) are proactively engaged in measures to avert the rupee depreciation. Central banks globally, including the Federal Reserve, have lowered interest rates due to increased inflation.

For the currency to be strong and stable, many factors must be in order. 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's crude oil imports are majorly sourced from the United Arab Emirates, Russia, and Saudi Arabia, which account for over 80% of the total imports. However, India's ports handle only a meager 10% of global trade. India has strategically diversified its crude oil imports by increasing its procurement from Gabon, Colombia, Canada, Nigeria, and Iraq. This move aims to mitigate the risks associated with over-reliance on a limited number of oil producers. The current global economic landscape has been impacted by several events, including the trade tensions between Russia and Ukraine, the widespread flu outbreak, and the ongoing oil crisis. These factors have contributed to a challenging business environment. The market price of crude oil has experienced a significant increase of over 100%, rising from a low of $70 per barrel to a high of $120 per barrel. As per the projections, India is expected to disburse $722.54 million to Brazil in the initial quarter of the fiscal year 2023-2024 in exchange for oil procurement. More than 70% of the crude oil requirements of the United States are met through imports.

Based on the data presented in the table and graph, it can be observed that the price of a barrel of oil experienced a decline from $75.06 on June 5 to $66.8 on June 12, 2023. The Indian economy and way of life rely heavily on crude oil, which may lead to a potential decline in productivity, an increase in prices, and a devaluation of the Indian rupee.

Crude Oil (in USD)
Date	Open	High	Low	Close
Jun 01, 2023	67.6	71.07	67.51	70.1
Jun 02, 2023	70.21	72.17	70	71.74
Jun 05, 2023	75.03	75.06	71.73	72.15
Jun 06, 2023	71.99	72.33	70.13	71.74
Jun 07, 2023	71.56	73.19	71.01	72.53
Jun 08, 2023	72.47	73.28	69.03	71.29
Jun 09, 2023	70.94	71.77	70.1	70.17
Jun 12, 2023	70.27	70.33	66.8	67.12
Jun 13, 2023	67.31	69.83	67.15	69.42
Jun 14, 2023	69.35	70.49	68.07	68.27
Jun 15, 2023	68.7	70.96	67.97	70.62

2. Gold imports

The cultural and economic value of gold is augmented by its extensive usage in Indian jewelry. During 2022 and 2023, concerns arose among individuals regarding their insufficient gold reserves to withstand the impending pandemic. The Indian economy has experienced a downturn due to the recent surge in gold prices and imports. Consequently, the government has augmented the existing onerous duty on gold imports by an additional 15%. The demand from buyers has remained resilient despite the rise in taxation owing to the substantial decline in the value of gold, which compensates for the increase in taxes.

The chart and table below depict the consistent upward trend of gold prices. As of the current market conditions, the median value of gold is $1959.43. The recent performance is an improvement compared to the preceding fortnight of March. Our projections indicate that gold prices are expected to decrease from $1983.00 on June 1 to $1926.00 on June 15 of the upcoming year. The influx of gold into India from foreign sources has been observed to impact inflation rates, causing them to surge significantly. To effectively control inflation, it may be advisable for the Federal Reserve to consider imposing restrictions on the government's acquisition of gold.

Gold Rate (in USD)
Date	Open	High	Low	Close
Jun 01, 2023	1,963.20	1,983.00	1,954.30	1,978.00
Jun 02, 2023	1,977.10	1,982.50	1,947.40	1,952.40
Jun 05, 2023	1,947.50	1,961.90	1,937.80	1,958.00
Jun 06, 2023	1,960.80	1,965.50	1,958.80	1,965.50
Jun 07, 2023	1,959.00	1,968.40	1,940.70	1,942.70
Jun 08, 2023	1,943.20	1,969.00	1,943.10	1,963.60
Jun 09, 2023	1,965.10	1,969.80	1,960.30	1,962.20
Jun 12, 2023	1,959.70	1,963.50	1,951.40	1,955.30
Jun 13, 2023	1,960.60	1,967.50	1,940.30	1,944.60
Jun 14, 2023	1,946.20	1,958.20	1,940.30	1,955.30
Jun 15, 2023	1,941.70	1,958.80	1,926.00	1,957.80

3. GDP & Import/Export

The impact of a trade deficit on GDP is subject to moderation by various factors. The balance of trade, which is the difference between a country's imports and exports, can significantly impact its currency valuation and economic well-being. A trade deficit, wherein a nation's imports exceed exports, may have adverse implications for currency holders. There is a possibility of a decline in the GDP.

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
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
Mar-23	13.10	6.00
Apr-23	7.50	3.10

The chart below illustrates the challenges of making precise forecasts regarding trade deficits. From March to July, there was a notable rise in the proportion of imports sourced from India. Further investment is required to enhance the development in this particular domain. India's trade balance exhibited a positive trend in the final quarter of 2022, with October and December marking the first instances of a surplus in the country's trade balance. Despite an abundance, India's balance of trade witnessed a rise in the deficit of $8.7 million. Historically, there has been a notable trade imbalance, with exports falling short of imports. The positive change observed in September is a promising sign, assuming no unforeseen obstacles exist.

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

To address trade deficits, countries should consider devaluing their currency. The potential exists for a decrease in operational efficiency associated with the execution of mundane duties. Despite the devaluation, India's GDP demonstrated a notable growth trajectory, with an increase from 5.4% in February 2022 to 13.5% in July 2022 and 6.1% in March 2023. The significant expansion of the economy can be attributed to the diligent efforts of the Indian government and indicates a promising financial outlook for India. According to the RBI's projections, there is an anticipated deceleration in growth by the year 2023. Based on the current trend, the currency's value may appreciate over the next three consecutive quarters.

4. Inflation rates

The GDP and inflation rate are two key factors that can substantially impact the valuation of a nation's currency. The annual inflation rate for July declined to 6.71%, representing the lowest reading since the start of the year in January 2022. Following the 7.01% rate observed in June, there has been a decline to 4.09 .

India's Inflation rates
Date	Percentage
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
Apr-23	4.70
May-23	4.25

There was a decline in the inflation rate from 6.1% in January to 4.25% in May of the same year. The correlation between GDP and inflation is complex and interdependent, making identifying the root cause of rate disparities challenging. The fluctuations in the market are an inevitable outcome of the economy's swift growth, which can result in periodic volatility.

US Inflation rates
Date	Percentage
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
Apr-23	4.90
May-23	4.00

Recent data indicates an upward trend in inflation rates for both the United States and India. The inflation rate in the United States surged to 9.1% in May 2022, leading to the Federal Reserve's decision to increase the repo rate by 75% in June. The inflation rate experienced a decline to 4.0% in May 2023, marking its lowest point in the past three years. The rupee devaluation suggests that the US dollar has outperformed the Indian economy.

5. Interest rates

To mitigate the Consumer Price Index (CPI) rise, the Reserve Bank of India (RBI) raised the interest rates from 4.4% to 4.9% in July of 2022. Due to the increased expenses associated with conducting business operations, financial institutions will probably increase their rates for both deposits and loans. According to the popular sentiment among Indians, a rise in interest rates would positively impact the nation's economic landscape. In 2020, India experienced a significant reduction in its population due to the impact of the coronavirus pandemic, resulting in a 4% decline. In August 2022, the repo rate experienced a slight uptick from 5.24% to 5.25%. Subsequently, in September 2022, there was a further increase of 0.1% in the repo rate. The prevailing interest rate stands at 5.25%; however, it is projected to rise to 6.50% by December 2022. There was a prevalent anticipation among market participants that the Reserve Bank of India (RBI) would announce a hike in the repo rate after the Union Budget's unveiling 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

Similar to the actions taken by the Reserve Bank of India Federal Reserve in the United States has opted to raise interest rates to address inflationary pressures. There has been a substantial increase in the repo rate, with a rise of 75%. In May 2023, the interest rate experienced a decline to 5.08% as a result of enhanced economic conditions and reduced inflation. The Federal Reserve's decision to increase interest rates is a critical factor in ensuring the success of the American economy. The depreciation of the Indian rupee against the US dollar can be attributed to the growing disparity in cultural and linguistic comprehension between India and the United States.

US Fed Interest Rates
Date	Interest Rate
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
May-23	5.08

6. Foreign and Domestic Investment

An increase in foreign direct investment (FDI) typically results in a corresponding rise in interest rates. From a financial analysis perspective, it is essential to consider the situation's benefits and drawbacks. The Reserve Bank of India has announced its intention to increase its foreign currency reserves to depreciate the value of the Indian rupee. As per the projections of the Reserve Bank of India, foreign investment in the year 2022 is expected to witness a surge of approximately $83 billion compared to the preceding year's levels. This growth is primarily attributed to the escalation in foreign currency sales. If the assets of the Reserve Bank of India exceed $100 billion by the conclusion of the fiscal year 2022-2023, we may observe a gradual devaluation of the rupee.

India's FDI
Date	FDI (US$ Million)
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
Jan-23	4056
Feb-23	2850
Mar-23	2382

The chart illustrates the consistent pattern of international corporations' foreign direct investment (FDI) equity acquisitions. During Q1 2023, the shares in question experienced a surge in sales, surpassing the projected figures for the subsequent year. However, by the end of Q4, the sales had declined to approximately $2,382,000.00. Analysts predict a decline in foreign investment amidst the improving Indian economy. Based on current projections, it is anticipated that the Indian economy will experience a notable upswing by either 2023 or 2024, resulting in a corresponding increase in the rupee value.

The Indian government has implemented initiatives to enhance the global recognition of the rupee. The stabilization of the Indian economy cannot be attributed to the Reserve Bank of India (RBI) or the Federal Reserve System (Fed) in the United States. Instead, the concerted efforts of domestic organizations, businesses, and individuals have contributed to this outcome. The depreciation of the Indian rupee and the overall economic performance of India have been adversely impacted by various global events and other contributing factors. The regulatory authorities, namely the government and the Reserve Bank of India, are taking measures to reinstate stability. By leveraging collective resources and fostering collaboration, sustaining economic expansion and stabilizing pricing trends through 2024 is possible.