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

Key points:

• The Indian rupee is weak against the US dollar.
• To curb inflation, the Federal Reserve in the United States has increased interest rates to 4%.
• Both the US and India are seeing declining inflation rates.
• The market expects a rate hike of 25 basis points from the Reserve Bank of India (RBI) in February 2023.
• There was a slowdown in India's economy last quarter.

According to economists, after 2023, India's economic growth pattern is expected to change. The United States economy has shown improvement despite the global economic downturn. The latest quarter saw 13.5% growth in India's GDP but no change in the value of the rupee. Experts agree that yearly rather than quarterly measurements of India's economic growth are the most meaningful. The RBI's coordination with other government bodies has boosted the Indian economy. The economy and the currency have benefited from the government's decision to increase interest rates and limit trade.

USD to INR Exchange Rates
Date	Open	High	Low	Close
May 01, 2023	81.74	81.92	81.71	81.74
May 02, 2023	81.77	81.95	81.72	81.77
May 03, 2023	81.78	81.89	81.71	81.78
May 04, 2023	81.78	81.88	81.62	81.78
May 05, 2023	81.72	81.82	81.65	81.72
May 08, 2023	81.73	81.83	81.67	81.73
May 09, 2023	81.79	82.15	81.78	81.79
May 10, 2023	82.11	82.21	81.87	82.11
May 11, 2023	81.92	82.18	81.78	81.92
May 12, 2023	82.10	82.23	82.07	82.10
May 15, 2023	82.20	82.37	82.18	82.20

Currently, one U.S. dollar can be exchanged for 82.02 Indian rupees. In contrast to the first half of this month, the rupee has been relatively stable in the second. This shows the development and potential of the rupee in international trade. Recent swings in the value of the rupee have added to existing worries about the long-term health of the Indian economy and currency. On May 15, 2023, the value of the rupee peaked at 82.21, and on May 4, 2023, it reached an all-time low of 81.62. In the past 14 days, it has moved by an average of 0.048 points daily. The Indian government and the RBI want to protect the rupee's stability. Central banks worldwide, including the Federal Reserve in the United States, have lowered interest rates to combat 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

Only about 10% of global trade passes through India's ports, even though the UAE, Russia, and Saudi Arabia supply over 80% of India's crude oil imports. India has increased its crude oil imports from Gabon, Colombia, Canada, Nigeria, and Iraq to diversify its supply and reduce its reliance on a small number of oil producers. Doing business has been complicated by events on a global scale, such as the trade war between Russia and Ukraine, the global flu epidemic, and the oil crisis. From a low of $70 per barrel to a high of $120 per barrel, crude oil prices have more than doubled. The estimated $722.54 million that India will pay Brazil for oil in the first quarter of 2023-2024. More than 70% of America's crude oil requirements must be met through imports.

A barrel of oil dropped from $76.69 on May 1 to $6.34 on May 4, 2023, as shown in the table and graph below. Given the significance of crude oil to the Indian economy and way of life, the results could be a drop in productivity at work, higher prices, and a devaluation of the Indian rupee.

Crude Oil (in USD)
Date	Open	High	Low	Close
May 01, 2023	76.66	76.69	74.53	75.66
May 02, 2023	75.76	76.11	71.42	71.66
May 03, 2023	71.56	71.79	67.95	68.60
May 04, 2023	68.16	69.84	63.64	68.56
May 05, 2023	68.70	71.81	68.48	71.34
May 08, 2023	71.35	73.69	71.04	73.16
May 09, 2023	72.84	73.78	71.34	73.71
May 10, 2023	73.58	73.89	71.80	72.56
May 11, 2023	72.77	73.50	70.63	70.87
May 12, 2023	71.42	71.78	69.93	70.04
May 15, 2023	70.04	71.69	69.41	71.11

2. Gold imports

Gold's widespread use in Indian jewelry contributes to both its cultural and economic significance in the country. People started panicking in 2022 and 2023 because they hadn't stashed enough gold to survive the oncoming pandemic. The recent uptick in the price and import of gold has hurt the Indian economy. In response, the government has imposed a whopping 15% surcharge on the already prohibitive 10.75% tax on gold imports. Gold's declining value more than offsets the higher tax rate, so buyers have persisted despite the increase.

The following chart and table show how gold prices have increased over time. Gold's current average price is $2024.76. Compared to the final two weeks of March, this is an improvement. On May 1 and May 4 of that year, the price of gold is projected to be $1976.80 and $2072.00, respectively. Inflation in India can soar when gold floods in from abroad. To control inflation, the Federal Reserve might want to restrict government purchases of gold.

Gold Rate (in USD)
Date	Open	High	Low	Close
May 01, 2023	1,980.10	2,005.00	1,976.90	1,983.40
May 02, 2023	1,994.70	2,018.00	1,994.70	2,014.30
May 03, 2023	2,017.10	2,035.10	2,015.20	2,028.60
May 04, 2023	2,045.00	2,072.00	2,040.00	2,048.00
May 05, 2023	2,046.40	2,046.40	2,004.30	2,017.40
May 08, 2023	2,022.50	2,026.30	2,022.50	2,026.30
May 09, 2023	2,026.60	2,037.30	2,025.90	2,036.20
May 10, 2023	2,032.30	2,044.30	2,029.50	2,030.50
May 11, 2023	2,034.10	2,038.30	2,014.00	2,014.70
May 12, 2023	2,014.50	2,014.50	2,014.50	2,014.50
May 15, 2023	2,013.80	2,018.00	2,013.80	2,018.00

3. GDP & Import/Export

Several factors temper the extent to which a trade deficit affects GDP. The strength of a country's currency and overall economy can be influenced by the amount of goods and services it imports and exports. Currency holders may experience difficulties when a country imports more than it exports. This may lower GDP.

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

The following chart illustrates how challenging it is to foresee trade deficits precisely. Strangely, the percentage of imports originating in India rose between March and July. However, progress has yet to be made in this region. In October and December of 2022, India's trade balance was positive for the first time that year. The surplus didn't prevent India's trade deficit from growing by $8.7 million with the rest of the world. A wide gap exists between exports and imports, and this has always been the case. The optimistic delta for September bodes well, barring any unforeseen complications.

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

Currency devaluation is necessary for countries with trade deficits. The effectiveness of regular activities may suffer as a result. Even after the devaluation, the Indian economy increased from 5.4% in February 2022 to 13.5% in July 2022 and 4.4% in January 2023. The Indian government has worked hard to achieve this remarkable economic growth, which augurs well for India's financial future. By 2023, the RBI anticipates a deceleration in growth. The currency's value will rise if this trend persists for three consecutive quarters.

4. Inflation rates

A country's GDP and inflation rate can significantly impact the value of its currency. Inflation dropped to 6.71 percent annually in July, the lowest rate since January 2022. The current rate is 4.09%, down from 7.01% in June.

India's Inflation rates
Date	Percentage
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
Apr-23	4.70

The inflation rate was 6.1% in January but dropped to 4.7% by April of the same year. It is challenging to attribute rate differences to a single factor due to the complexity and interconnectedness of the relationship between GDP and inflation. The rapid growth of the economy makes these kinds of fluctuations inevitable from time to time.

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

The United States and India both experienced increases in their respective inflation rates. Inflation in the United States hit 9.1 percent in May of 2022, prompting the Federal Reserve to raise the repo rate by 75 percent in June. However, in April 2023, inflation dropped to 4.9%, the lowest rate in three years. The declining rupee value indicated that the US dollar was gaining ground faster than the Indian economy.

5. Interest rates

The Reserve Bank of India raised interest rates from 4.4% to 4.9% in July 2022 to reduce consumer price inflation. Banks will likely increase their deposit and loan rates due to the increased cost of doing business. Most people in India believe raising interest rates is good for the economy. By 2020, 4 percent of India's population had perished due to the coronavirus pandemic. In August 2022, the repo rate went up to 5.25% from 5.24%; in September 2022, it went up by another 0.1%. In December 2022, however, the interest rate will rise to 6.50%. Many Indians anticipated the Reserve Bank of India (RBI) to raise the repo rate again after the Union Budget was 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

The Reserve Bank of India has raised interest rates in response to inflation, much like the Federal Reserve has done in the United States. The repo rate has increased by a considerable margin, up 75%. As the economy has improved and inflation has decreased, the interest rate has dropped to 4.83% as of March 2023. The importance of Federal Reserve interest rate hikes to the health of the US economy is widely acknowledged. As the cultural and linguistic chasm between India and the United States widens, the Indian rupee weakens against the US dollar.

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

A rise in interest rates typically accompanies increases in FDI. There are benefits and drawbacks to consider in this scenario. The Reserve Bank of India plans to increase its purchases of foreign currency to devalue the rupee. Foreign investment is expected to increase by about $83 billion in 2022 compared to 2021 due to higher foreign currency sales, as the Reserve Bank of India reported. Rupee depreciation could be gradual if RBI assets increase to over $100 billion by the end of the 2022-2023 fiscal year.

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 Indian government has taken steps toward establishing the rupee as a legitimate currency on a global scale. Organizations, businesses, and the general public in India deserve the credit for stabilizing the country's economy, not the Reserve Bank of India (RBI) or the Federal Reserve System (Fed) in the United States. The Indian economy and the rupee's value have suffered due to international events and several interconnected factors. However, the government and the RBI are taking measures to bring things back into equilibrium. We can achieve sustainable economic growth and price stability through 2024 if we pool our resources and work together.