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

Key points:

• The value of the Indian rupee has increased against the dollar.
• The USD/INR exchange rate has been volatile, with the Indian Rupee gaining strength against the US Dollar recently.
• The Reserve Bank of India (RBI) is taking measures to prevent the devaluation of the Indian Rupee.
• Foreign investments in India are anticipated to increase, bolstering economic stability.
• The US Federal Reserve has raised interest rates to curb inflation, boosting the appeal of the US Dollar for investors.
• The Indian economy displayed a favorable growth trend in the previous quarter.

A comprehensive analysis conducted by financial experts suggests that India's economy is poised for a significant transformation in 2023. The United States has displayed a noteworthy resurgence despite a global economic downturn. In recent developments, India's Gross Domestic Product (GDP) has exhibited a remarkable upswing, registering an impressive growth rate of 13.5% in the most recent quarter. Notably, the Indian Rupee has maintained noteworthy stability during this period, experiencing minimal fluctuations.

It is crucial to note that financial analysts typically evaluate India's economic growth annually rather than relying solely on quarterly assessments. The strategic partnership with the Reserve Bank of India (RBI) has proven to be highly productive for India's economy, contributing to its positive trajectory.

Furthermore, recent policy initiatives implemented by the government, such as the decision to increase interest rates and impose tax restrictions, have yielded favorable outcomes for both the economy and the national currency. These prudent measures have positively influenced the nation's economy's trajectory and enhanced its currency's stability.

USD to INR Exchange Rates
Date	Open	High	Low	Close
01-Nov-23	83.2772	83.3493	83.1979	83.2772
02-Nov-23	85.194	83.3259	83.1705	85.194
03-Nov-23	83.2473	83.328	83.1454	83.2473
06-Nov-23	83.1585	83.2597	82.9766	83.1585
07-Nov-23	83.2228	83.2809	83.1445	83.2228
08-Nov-23	83.2327	83.3153	83.1843	83.2327
09-Nov-23	83.2177	83.3091	83.2187	83.2177
10-Nov-23	83.3194	83.5258	83.2317	83.3194
13-Nov-23	83.2989	83.3991	83.2182	83.2989
14-Nov-23	83.1976	83.333	82.909	83.1976
15-Nov-23	82.9816	83.2059	82.922	82.9816

Based on the latest available data, it is evident that the current exchange rate between the US Dollar and the Indian Rupee (USD/INR) stands at 83.18. The first part of November demonstrated more price stability than the second part of October. The value of the Indian Rupee against the US dollar reached its highest point on November 2, 2023, in the initial days of November, reaching 85.194. Subsequently, from November 3 to November 14, 2023, it exhibited a relatively constant trend. However, on November 15, 2023, there was a decline, reaching a low point of 82.98. Over the period from November 1 to November 15, 2023, we observed a modest change of 0.348%. Notably, the value of the Indian Rupee decreased in the first part of November compared to October.

Analyzing the asset's behavior shows a 14-day historical volatility with an average daily fluctuation of 0.053 points. The standard deviation is at 0.603 points, indicating significant volatility with daily changes in the value of the Indian Rupee.

The Reserve Bank of India (RBI) is actively implementing strategies to counteract the devaluation of the Rupee, while simultaneously, the Federal Reserve has taken measures to reduce interest rates in response to increasing inflation.

Many factors must be 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 predominantly relies on crude oil imports from the United Arab Emirates, Russia, and Saudi Arabia, constituting over 80% of its total oil imports. Despite being a significant consumer, India's share in the global oil trade remains modest, hovering around 10%. India has strategically diversified its sources to mitigate risks associated with dependence on a limited group of oil-producing nations, strengthening ties with suppliers such as Gabon, Colombia, Canada, Nigeria, and Iraq.

Various factors, including ongoing trade tensions between Russia and Ukraine, the persistent impact of the influenza outbreak, and enduring challenges within the oil industry, significantly influence the current global economic landscape. This complex economic environment poses multifaceted and demanding conditions for international trade. The market price of crude oil has surged by more than 100%, rising from a low of $70 per barrel to a peak of $120 per barrel. According to financial projections, India plans to allocate $722.54 million to Brazil in the first quarter of the fiscal year 2023-2024, a crucial component of its strategic plan to secure essential oil resources.

A detailed analysis of tabular and graphical data reveals an unusual decline in the price of a single barrel of oil. The highest recorded price occurred on November 1, 2023, at $82.46. Prices started declining from November 1, reaching the lowest point of $75.33 on November 8, 2023. Subsequently, there was an increase from November 9 to 15, 2023, with a change of 1.21%. The average price during this period is calculated to be $78.25. Notably, the Indian economy and its socio-economic structure are closely linked to the performance of the crude oil market, exerting a significant influence. Adverse developments in this industry have the potential to impact productivity levels negatively and put upward pressure on prices. Additionally, the current conditions may lead to a depreciation of the Indian Rupee.

Crude Oil (in USD)
Date	Open	High	Low	Close
01-Nov-23	80.82	82.83	80.22	82.46
02-Nov-23	82.58	83.6	80.1	80.51
06-Nov-23	81.13	82.24	80.66	80.82
07-Nov-23	80.93	81.05	77.09	77.37
08-Nov-23	77.12	77.53	74.91	75.33
09-Nov-23	75.65	77.16	75.21	75.74
10-Nov-23	75.59	77.73	75.31	77.17
13-Nov-23	77.15	78.64	76.21	78.26
14-Nov-23	78.53	79.77	77.79	78.26
15-Nov-23	78.17	78.77	76.31	76.66

2. Gold imports

The cultural and economic significance of gold in India is notably amplified by its extensive use in traditional jewelry. However, in 2022 and 2023, a growing concern has permeated the populace as individuals grapple with the inadequacy of their gold holdings in the face of an impending pandemic. The economic landscape of India has experienced a downturn due to a recent surge in gold prices and imports. In response, the government has imposed an additional 15% duty on gold imports, exacerbating the strain on an already heavily taxed system.

Curiously, the heightened taxation has yet to lead to a proportional decrease in buyer demand. This anomaly can be attributed to the substantial increase in the intrinsic value of gold, effectively offsetting the tax hike's impact. The chart and table visually represent the continuous upward trajectory in gold prices. As of the latest data, the median gold price in the current market is $1992.03. A comprehensive analysis has revealed noteworthy price fluctuations in the gold market.

The surge in gold prices commenced on November 1, 2023. From November 1 to November 2, 2023, prices experienced an increase, reaching a peak of $1991.50, which stands as the highest recorded price in this period. However, from November 2, 2023, the prices gradually declined. The lowest point was November 10, 2023, at $1932.60. Subsequently, from November 10, 2023, gold prices were resurgent, reaching $1960.10.

Throughout this period, the market exhibited fluctuations, and the standard deviation was calculated to be 494.23, indicating a degree of volatility in the gold prices.

Gold Rate (in USD)
Date	Open	High	Low	Close
01-Nov-23	1,989.10	1,990.30	1,979.50	1,985.60
02-Nov-23	1,989.00	1,991.50	1,989.00	1,991.50
06-Nov-23	1,981.60	1,981.60	1,977.40	1,981.60
07-Nov-23	1,966.50	1,966.80	1,960.70	1,966.80
08-Nov-23	1,967.80	1,967.80	1,947.70	1,951.50
09-Nov-23	1,951.70	1,964.20	1,945.30	1,964.20
10-Nov-23	1,959.60	1,959.60	1,932.60	1,932.60
13-Nov-23	1,939.90	1,947.20	1,934.00	1,945.50
14-Nov-23	1,965.80	1,965.80	1,961.80	1,961.80
15-Nov-23	1,962.80	1,962.80	1,960.00	1,960.10

Particularly striking is the substantial influx of gold into the Indian economy from foreign sources, which has had a distinct impact on inflationary trends. This influx has led to a considerable increase in inflation rates. To effectively address and manage these inflationary pressures, the Federal Reserve should consider implementing restrictions or regulations on the government's acquisition of gold. Such measures could prove instrumental in mitigating the potential adverse effects on the economy resulting from this surge of gold and its influence on inflation.

3. GDP & Import/Export

The impact of a trade deficit on a nation's Gross Domestic Product (GDP) is a complex interplay influenced by various factors rather than a straightforward and isolated phenomenon. The trade balance, which reflects disparities in a country's imports and exports, significantly influences its currency exchange rates and overall economic well-being. When a country experiences a trade deficit, where imports exceed exports, it can have adverse consequences, especially for currency investors. During economic downturns, one possible outcome is a contraction in the Gross Domestic Product (GDP).

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
Dec-22	20.4	5.7
Jan-23	29.6	7.5
Feb-23	28.8	10.8
Mar-23	13.1	6
Apr-23	7.5	3.1
May-23	7.7	2
Jun-23	3.5	3.4
Jul-23	8.1	2.2
Aug-23	8.4	0.8

The visual representation below provides a comprehensive perspective on the challenges of making accurate predictions regarding trade deficits. Notably, there was a substantial upward trend in the proportion of imports originating from India between March and July. To support this sector's growth, injecting additional funds is crucial. Significantly, India's trade balance showed a promising upward trajectory in the final quarter of 2022, with trade surpluses observed in October and December. Moreover, there was a significant 9.09% increase in exports from May 2023 to August 2023. The highest level of imports occurred in February 2023 but decreased dramatically by 1250% in August 2023. This positive trend suggests a favorable outlook for the country's trade performance. Despite India's abundant resources, there was a significant rise in the trade deficit, reaching a substantial figure of $5.7 million. This noticeable trade imbalance has persisted over past periods, characterized by a consistent export deficit compared to imports. The favorable trend observed in October is promising, subject to unforeseen challenges or obstacles that might hinder progress.

GDP Rate in India
Date	Rate (%)
May-21	2.5
Aug-21	21.6
Nov-21	9.1
Feb-22	5.2
May-22	4
Aug-22	13.1
Nov-22	6.2
Feb-23	4.5
May-23	6.1
Aug-23	7.8

To effectively address trade imbalances, countries must carefully consider the strategic use of currency devaluation. Poor execution of routine tasks can hamper operational efficiency. Despite India's currency depreciation, the country's Gross Domestic Product (GDP) exhibited a noteworthy upward trajectory, surging from 9.1% in November 2021 to 13.1% in August 2022, before moderating to 7.8% in August 2023. This impressive economic growth can be attributed to the diligent efforts of the Indian government, signaling a positive financial outlook for India.

According to the forecasts released by the esteemed Reserve Bank of India (RBI), the economic growth rate is expected to be decelerated by 2023. Considering the current market conditions, the currency's value will likely appreciate over the next three consecutive quarters.

4. Inflation rates

Two fundamental factors significantly influence a nation's currency valuation: Gross Domestic Product (GDP) and the inflation rate. Of note, the most favorable data point within these metrics has been recorded since the commencement of the current fiscal year in January 2023. There has been a noteworthy trajectory in crucial economic indicators during this fiscal year.

In July 2023, there was a substantial interest rate increase, reaching 7.4%. However, this was followed by a subsequent reduction in September 2023, bringing the interest rate down to 5.02%. Similarly, the inflation rate significantly shifted within the same fiscal year, decreasing from 6.44% in January to 4.7% in April 2023. It's worth highlighting that July 2023 marked the peak of inflation. Notably, there has been a substantial 19.13% change in these economic indicators from November 2022 to October 2023.

India's Inflation rates
Date	Percentage
Nov-22	5.88
Dec-22	5.72
Jan-23	6.52
Feb-23	6.44
Mar-23	5.66
Apr-23	4.7
May-23	4.25
Jun-23	4.87
Jul-23	7.4
Aug-23	6.83
Sep-23	5.02
Oct-23	4.87

It is imperative to conduct a thorough analysis to gain a comprehensive understanding of the intricate and interconnected dynamics between GDP and inflation. This analysis involves identifying and examining the underlying factors that contribute to the fluctuations in interest rates. This task can be intricate, as various economic forces are at play. Moreover, it is crucial to acknowledge that the market's fluctuations are an inherent consequence of the economy's rapid expansion. This expansion can lead to intermittent periods of instability and change in economic conditions, further underscoring the situation's complexity.

US Inflation rates
Date	Percentage
Oct-22	7.7
Nov-22	7.1
Dec-22	8
Jan-23	6.4
Feb-23	6
Mar-23	5
Apr-23	4.9
May-23	4
Jun-23	3
Jul-23	3.2
Aug-23	3.7
Sep-23	3.7
Oct-23	3.2

Recent economic data has revealed a notable and concerning decrease in inflation rates in both the United States and India. In the United States, October 2022 witnessed a significant surge in the inflation rate, marking a remarkable rise to 7.7%. This inflationary trend peaked in December 2022 when the inflation rate hit 8%, and it reached its lowest point in June 2023, dropping to a more manageable 3%.

Recognizing the situation's seriousness and considering the prevailing market conditions, the Federal Reserve made a prudent and strategic decision in June to increase the repo rate by 75%. The primary objective of this move was to mitigate and control the inflationary pressures affecting the US economy. As a result of this decision, the inflation rate began to exhibit a substantial and encouraging downward trajectory. By September 2023, the inflation rate had fallen to 3.7%, and 3.2% in October 2023, marking its most significant decline in the past three years.

Furthermore, it is worth noting that the devaluation of the Indian rupee has simultaneously affected the strength of the US dollar within the Indian economy. This currency dynamic has implications for various aspects of the Indian economy, including trade and investment.

5. Interest rates

In response to the upward movement of the Consumer Price Index (CPI), a measure of inflation), the Reserve Bank of India (RBI) adopted a cautious approach in July 2022 by increasing the existing interest rates. These rates rose from 4.4% to 4.9%. This decision was driven by concerns about the rising costs associated with commercial activities, prompting expectations that financial institutions would also opt to raise their deposit and loan interest rates. The prospect of these interest rate hikes was generally well-received by the Indian population, as they perceived it as a positive development for the country's economic opportunities.

Looking back to the fiscal year 2020, India faced a significant demographic challenge due to the adverse impacts of the global spread of the coronavirus pandemic. This unfortunate circumstance led to a noticeable 4% decline in demographic metrics, which had far-reaching implications for the nation's economic landscape.

Subsequently, in August 2022, there was a slight adjustment in the repo rate, a key interest rate controlled by the RBI, increasing from 5.24% to 5.25%. It's worth noting that in September 2022, there was another marginal uptick of 0.1% in the repo rate, reflecting the central bank's efforts to manage economic conditions.

As for 2023, the repo rate remained steady until September, maintaining a rate of 6.50%. However, based on our in-depth analysis, the current interest rate, standing at 6.75%, is expected to undergo a significant upward trajectory shortly. Our projections indicate that by December 2023, the interest rate is poised to reach 6.90%. The market anticipates that the Reserve Bank of India (RBI) will likely announce an increase in the repo rate following the release of the Union Budget in February, aligning with the prevailing economic trends and inflationary pressures.

RBI Bank Interest Rates
Date	Rate (%)
Jul-22	5.4
Aug-22	5.4
Sep-22	6.15
Dec-22	6.5
Jan-23	6.5
Feb-23	6.5
Apr-23	6.5
May-23	6.5
Jun-23	6.5
Jul-23	6.5
Aug-23	6.5
Sep-23	6.5
Oct-23	6.5

The Federal Reserve in the United States has decided to raise interest rates in response to the current inflationary pressures. These pressures have arisen partly due to strategic initiatives taken by the Reserve Bank of India. The repo rate, a key interest rate in the US, has substantially increased by 75%. This is a noteworthy change and has implications for the overall economic landscape.

In July 2023, there was a marked reduction in the prevailing interest rate, which eventually stabilized at a notable level of 5.33%. However, as of October 2023, we can observe a change of 3.7% since July. This decrease in the interest rate can be attributed to favorable economic conditions and a reduction in inflationary pressures, both of which are essential factors in shaping the Federal Reserve's policy decisions.

The recent move by the Federal Reserve to increase interest rates is considered a crucial step aimed at ensuring stability and fostering the growth of the American economy. These adjustments are a part of the broader monetary policy strategy to manage inflation and maintain economic equilibrium.

Additionally, the devaluation of the Indian rupee concerning the US dollar can be attributed to a range of factors. Economic fundamentals and market dynamics play a significant role in shaping exchange rates. These factors encompass the performance of the Indian economy, trade balances, and investor sentiment, among others.

Furthermore, it's important to note that cultural and linguistic differences between India and the United States could also influence the prevailing exchange rate. These differences can lead to variations in trade practices, investment strategies, and communication, impacting the currency exchange rates between the two nations.

US Fed Interest Rates
Date	Interest Rate
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
Jul-23	5.33
Aug-23	5.5
Sep-23	5.5
Oct-23	5.5

In summary, the Federal Reserve's decision to adjust interest rates is a critical response to inflationary pressures, and the broader economic landscape is continually evolving. The devaluation of the Indian rupee concerning the US dollar is influenced by a complex interplay of economic, cultural, and market factors, making it a multifaceted issue.

6. Foreign and Domestic Investment

An increase in foreign direct investment (FDI) often aligns with a rise in interest rates, necessitating a comprehensive financial analysis to weigh the advantages and disadvantages of such a scenario. The Reserve Bank of India has recently outlined its strategic goal to boost foreign currency reserves, which could put downward pressure on the Indian rupee's value. According to the Reserve Bank of India's projections, foreign investments in 2022 are poised for a significant upswing, with an anticipated rise of around $83 billion, surpassing the levels seen in the previous year. This noteworthy growth is primarily attributed to a substantial increase in foreign currency sales. Suppose the Reserve Bank of India's assets indeed exceed the notable threshold of $100 billion by the conclusion of the fiscal year 2022-2023. In that case, we are likely to witness a gradual depreciation of the rupee, given the current market conditions.

India's FDI
Date	FDI (US$ Million)
Nov-22	2411
Dec-22	4411
Jan-23	4056
Feb-23	2850
Mar-23	2382
Apr-23	5106
May-23	2678
Jun-23	3162
Jul-23	2546
Aug-23	2908
Sep-23	4089

The graph illustrates a consistent pattern in foreign direct investment (FDI) equity acquisition by multinational enterprises. Notably, the first quarter of 2023 witnessed a significant surge in the sale of evaluated shares, surpassing the projected figures for the upcoming fiscal year. However, it is crucial to highlight that sales experienced a substantial decline in the fourth quarter, plunging to approximately $2,382,000.00. In April 2023, there was a marginal increase of $2,742.00, but by June 2023, sales dwindled to $3,162.00. Following June, the values declined, reaching $4,089 in September 2023.

A thorough analysis conducted by esteemed financial experts suggests that foreign investment might decrease due to the favorable trajectory of the Indian economy. According to current economic forecasts, the Indian economy is poised for a significant upswing, likely in 2023 or 2024. This positive trend is expected to align with a corresponding increase in the value of the Indian rupee.

The Indian government has implemented a series of strategic measures to enhance the international standing of the rupee. The stability of the Indian economy is not solely attributed to the efforts of institutions like the Reserve Bank of India (RBI) or the Federal Reserve System (Fed) in the United States.

Furthermore, the collaborative endeavors of various stakeholders in the domestic market, including companies, businesses, and individuals, have played a pivotal role in shaping the current economic landscape. Global events and contributing factors have adversely affected the devaluation of the Indian rupee and India's overall financial performance.

The regulatory framework, which involves different government bodies and the esteemed Reserve Bank of India, is actively implementing strategic measures to restore and strengthen the fundamentals of financial stability. By strategically utilizing combined resources and fostering mutually beneficial partnerships, there is a promising opportunity to sustain significant economic growth and establish a robust foundation for price stability until 2024.