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

Key points:

• The value of the Indian Rupee has declined against the US dollar.
• India's economy has shown positive growth, with a remarkable 13.5% increase in GDP in the most recent quarter.
• The United States Federal Reserve has proactively raised interest rates to combat inflation. When interest rates increase in the United States, the US dollar becomes more appealing to investors, making the dollar stronger and the Indian rupee weaker.
• Both the United States and India have experienced fluctuations in their inflation rates.
• The Indian economy displayed a favorable growth trend in the previous quarter.

According to a comprehensive financial expert analysis, India's economy is poised to transform in 2023 substantially. The United States has demonstrated a significant resurgence despite a global economic downturn. In a recent development, India's GDP experienced an impressive upswing, registering a remarkable growth rate of 13.5% in the most recent quarter. Notably, during this period, the Indian Rupee remained remarkably stable, displaying minimal fluctuations.

It is worth noting that financial analysts typically assess India's economic growth through annual measurements as opposed to quarterly evaluations. The strategic partnership with the Reserve Bank of India (RBI) has proven highly productive for the Indian economy. Furthermore, the recent policy initiatives undertaken by the government, including the upward revision of interest rates and the imposition of tax restrictions, have borne fruit by yielding favorable outcomes for both the economy and the currency. Consequently, these prudent measures have had a decidedly positive impact on the nation's economic trajectory and the stability of its currency.

USD to INR Exchange Rates
Date	Open	High	Low	Close
01-Sep-23	82.6824	82.7688	82.5424	82.6824
04-Sep-23	82.697	82.7812	82.5906	82.697
05-Sep-23	82.7346	83.0771	82.7065	82.7346
06-Sep-23	83.0861	83.2398	82.9152	83.0861
07-Sep-23	83.2574	83.309	83.066	83.2574
08-Sep-23	83.2415	83.26	82.9165	83.2415
11-Sep-23	83.0313	83.0522	82.8242	83.0313
12-Sep-23	82.9433	83.0082	82.868	82.9433
13-Sep-23	82.843	83.0312	82.825	82.843
14-Sep-23	82.9368	83.1037	82.9185	82.9368
15-Sep-23	83.0283	83.1807	83.0031	83.0283

Based on the latest available data, it's apparent that the USD/INR exchange rate currently stands at 82.79, representing the exchange rate between the US Dollar and the Indian Rupee. Prices were more stable in the last part of August than in the first part of September. From September 1, 2023, to September 3, 2023, the Indian Rupee value against the US dollar remained constant. The Indian Rupee demonstrated a notable surge, reaching its peak of $83.2 against the US dollar on September 7, 2023. Following a series of events, the asset above experienced a significant decline from September 1, 2023, ultimately reaching a low point of 82.94 on September 12, 2023. From September 7, 2023, to September 12, 2023, we notice a change of 0.37%. The asset under analysis has exhibited 14-day historical volatility with a daily average of 0.053 points, whereas the standard deviation stands at 0.201 points.

The data indicates notable volatility with daily fluctuations in the Rupee's value.

The Reserve Bank of India (RBI) is actively implementing strategies to address the devaluation of the Rupee. At the same time, the Federal Reserve has taken measures to lower interest rates in response to increased 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's primary source of crude oil imports hails predominantly from the United Arab Emirates, Russia, and Saudi Arabia, accounting for a substantial majority, exceeding 80% of the total volume of imports. Nonetheless, it is crucial to emphasize that India's current market share in the global trade landscape remains relatively modest, hovering at a mere 10%. India has astutely executed a well-crafted strategy to augment its crude oil import diversification by fortifying its procurement channels from vital sources such as Gabon, Colombia, Canada, Nigeria, and Iraq.

The underlying rationale for embarking on this strategic course of action lies in the imperative to mitigate the inherent risks associated with an overreliance on a limited group of oil producers. The current state of the global economy has been significantly shaped by various factors, with particular attention to the persistent trade tensions between Russia and Ukraine, the pervasive influenza outbreak, and the enduring challenges within the oil industry. This prevailing economic landscape has created a multifaceted and demanding commercial environment.

The price of crude oil in the market has witnessed a substantial surge, exceeding 100%, ascending from a low point of $70 per barrel to a peak of $120 per barrel. Based on the projected financial forecasts, India is poised to allocate $722.54 million to Brazil in the initial quarter of the fiscal year 2023-2024. This allocation is integral to their strategic arrangement to secure essential oil resources.

After thoroughly examining the tabular and graphical data, it becomes evident that there has been an unusual decline in the price of a single barrel of oil. The highest recorded price was observed on September 15, 2023, at $91.23, while the lowest was recorded on September 1, 2023, at $85.55, representing a 6.6% change. The average price during this period is calculated to be 87.97. It's important to note that the Indian economy and its socio-economic structure are intricately linked to the performance of the crude oil market, exerting a significant influence.

Crude Oil (in USD)
Date	Open	High	Low	Close
01-Sep-23	83.63	86.06	83.46	85.55
05-Sep-23	86.06	88.07	85.02	86.69
06-Sep-23	86.72	88.08	85.93	87.54
07-Sep-23	87.54	87.74	86.39	86.87
08-Sep-23	86.78	87.95	86.15	87.51
11-Sep-23	87.4	88.15	86.71	87.29
12-Sep-23	87.27	89.37	87.22	88.84
13-Sep-23	88.75	89.64	88.29	88.52
14-Sep-23	88.81	90.79	88.68	90.16
15-Sep-23	90.67	91.23	89.22	90.77

Consequently, any adverse developments in this industry have the potential to impact productivity levels negatively and simultaneously exert upward pressure on prices. Additionally, it is crucial to emphasize that the current conditions may lead to a depreciation of the Indian Rupee.

2. Gold imports

The cultural and economic significance of gold is heightened by its widespread use in Indian jewelry. In 2022 and 2023, worries emerged among people about their inadequate gold holdings to cope with the looming pandemic. The Indian economy has declined due to the recent upswing in gold prices and imports. As a result, the government has increased the already burdensome duty on gold imports by an additional 15%.

Interestingly, despite the higher taxation, buyer demand has remained resilient due to the significant drop in the value of gold, which offsets the tax increase.

The provided chart and table illustrate a continuous upward trajectory in gold prices. In the current market scenario, the median value of gold is $1924.27. Our in-depth analysis reveals a notable downward trajectory in the price of gold, starting at $1950 on September 1, 2023, and reaching $1903 on September 14 of the same year, representing a decrease of 2.4%. Following this period, post-September 14, 2023, there is a discernible uptick in the price, with a 1.05% increment, bringing the rate of gold to $1923.50. The calculated median value during this specific timeframe amounts to $1924.04.

Gold Rate (in USD)
Date	Open	High	Low	Close
01-Sep-23	1,950.00	1,950.00	1,936.60	1,939.80
05-Sep-23	1,934.40	1,934.40	1,924.70	1,926.20
06-Sep-23	1,924.10	1,925.30	1,916.30	1,918.10
07-Sep-23	1,917.60	1,921.50	1,917.50	1,917.50
08-Sep-23	1,924.00	1,924.70	1,918.40	1,918.40
11-Sep-23	1,923.00	1,928.30	1,921.80	1,923.30
12-Sep-23	1,920.80	1,920.80	1,911.30	1,911.30
13-Sep-23	1,910.30	1,914.60	1,908.90	1,909.10
14-Sep-23	1,903.00	1,910.00	1,903.00	1,910.00
15-Sep-23	1,923.50	1,927.30	1,923.50	1,923.70

What's particularly noteworthy is the significant 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 substantial 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 mitigate the potential adverse effects on the economy resulting from this influx 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 not a simple, isolated phenomenon but rather a complex interplay influenced by numerous mitigating factors. The trade balance, a pivotal metric reflecting a country's disparities in imports and exports, exerts substantial leverage over its currency exchange rates and overall economic well-being. When a nation experiences a trade deficit marked by imports surpassing exports, it can carry adverse ramifications, particularly for investors about currency. In times of economic decline, one conceivable 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 offers a comprehensive view of the complexities of making accurate predictions concerning trade deficits. Notably, between March and July, there was a significant upward trend in the proportion of imports originating from India. To bolster the advancement of this industry, it is essential to infuse additional funds. Notably, India's trade balance displayed a promising upward trajectory in the final quarter of 2022, as evidenced by trade surpluses in October and December. Furthermore, from May 2023 to August 2023, there was a noteworthy 9.09% increase in exports. The highest level of imports occurred in February 2023, but it declined by a staggering 1250% in August 2023. This encouraging trend indicates a positive outlook for the country's trade performance. Despite India's abundant resources, there was a significant increase in the trade deficit, reaching a substantial figure of $5.7 million. This conspicuous trade imbalance has persisted over previous periods, characterized by a consistent export deficit compared to imports. The positive trend observed in September is favorable, pending any unforeseen challenges or obstacles hindering 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 deficits, nations must consider strategically implementing currency devaluation. Inadequate execution of routine tasks can lead to a reduction in operational efficiency. Despite the depreciation of its currency, India's Gross Domestic Product (GDP) displayed a significant upward trend, with a substantial increase from 9.1% in November 2021 to 13.1% in August 2022, eventually moderating to 7.8% in August 2023. This remarkable economic expansion can be attributed to the diligent efforts of the Indian government, indicating a positive financial outlook for India.

According to the projections the respected Reserve Bank of India (RBI) put forth, there is an expected gradual economic growth rate by 2023. Given the current market conditions, the currency's value is anticipated to be positive over the next three consecutive quarters.

4. Inflation rates

Two fundamental factors significantly influencing a nation's currency valuation are its Gross Domestic Product (GDP) and the inflation rate. This particular metric represents the most favorable observation documented since the inception of the current fiscal year in January 2023. Following a substantial interest rate of 7.4% in July 2023, there was a subsequent reduction to 6.83% in August 2023. The inflation rate also exhibited a noteworthy decline, decreasing from 6.44% in January to 4.7% in April 2023 within the same fiscal year, with July 2023 marking the highest point. It's worth noting a 0.161% change from November 2022 to August 2023.

India's Inflation rates
Date	Rate (%)
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

A comprehensive analysis is imperative to understand the intricate and interconnected dynamics between Gross Domestic Product (GDP) and inflation. The task at hand involves identifying and examining the underlying factors contributing to fluctuations in interest rates, which can prove quite intricate. The market's fluctuations are an inherent consequence of the rapid expansion of the economy, which can lead to intermittent instability.

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

Recent data indicates a significant upsurge in inflation rates in both the United States and India. In October 2022, the United States witnessed a substantial increase in the inflation rate, with a remarkable jump to 7.7%. The highest inflation rate in the US was recorded in December 2022 at 8%, while the lowest was observed in June 2023 at 3%.

Given the current market conditions, the Federal Reserve made a prudent decision to increase the repo rate by 75% in June. This move was aimed at curbing inflation. Subsequently, the inflation rate displayed a substantial downward trend, marking a considerable decline to 3.7% in August 2023, the lowest level observed in the preceding three years.

Furthermore, the devaluation of the Indian Rupee implies a simultaneous strengthening of the US dollar within the Indian economy.

5. Interest rates

In response to the upward movement of the Consumer Price Index (CPI), the Reserve Bank of India (RBI) took a cautious approach by raising the existing interest rates in July 2022, increasing them from 4.4% to 4.9%. With the current trend of escalating expenses related to commercial activities, financial institutions are also expected to choose to raise their deposit and loan interest rates. This anticipated increase in interest rates is generally viewed positively by the Indian population, as it is seen as beneficial for the country's economic outlook.

In fiscal year 2020, India experienced a significant decrease in its population due to the adverse effects of the global spread of the coronavirus pandemic, resulting in a noticeable 4% decline in demographic metrics. In August 2022, there was a slight upward adjustment in the repo rate, rising from 5.24% to 5.25%. It's worth noting that in September 2022, there was a marginal uptick of 0.1% in the repo rate.

As for the year 2023, the repo rate remained the same in August, where it remained steady at 6.50%. Our in-depth analysis suggests that the current interest rate, at 5.25%, is expected to experience a significant upward trajectory. Our projections indicate that by December 2022, the interest rate will reach 6.50%. Market participants widely believed that the Reserve Bank of India (RBI) would likely announce an increase in the repo rate following the release of the Union Budget in February.

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

The Federal Reserve in the United States has chosen to raise interest rates in response to the current inflationary pressures resulting from the Reserve Bank of India's strategic initiatives. The repo rate has undergone a substantial and noteworthy increase of 75%. In July 2023, there was a significant reduction in the prevailing interest rate, ultimately stabilizing at a remarkable level of 5.33%. However, by September, we can observe a change of 3.7% since July, and this decrease in value can be attributed to favorable economic conditions and reduced inflationary pressures.

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

The recent decision by the Federal Reserve to increase interest rates is a crucial step aimed at ensuring stability and promoting the growth of the American economy. The devaluation of the Indian Rupee concerning the US dollar can be attributed to various factors, including economic fundamentals and market dynamics. One significant factor is the existence of cultural and linguistic differences between India and the United States, which could influence the prevailing exchange rate.

6. Foreign and Domestic Investment

An upward trend in foreign direct investment (FDI) typically goes hand in hand with an increase in interest rates. From a financial analysis perspective, it's crucial to assess the advantages and disadvantages of this situation. The Reserve Bank of India has recently unveiled its strategic goal to bolster its foreign currency reserves to put downward pressure on the value of the Indian Rupee.

According to the Reserve Bank of India's projections, foreign investments in 2022 are expected to increase significantly by around $83 billion, surpassing the levels seen in the previous year. This substantial growth can be primarily attributed to the significant surge in foreign currency sales. Assuming that the Reserve Bank of India's assets will exceed the considerable threshold of $100 billion by the end of the fiscal year 2022-2023, we will likely observe a gradual devaluation of the Rupee based on the current market conditions.

India's FDI
Date	FDI (US$ Million)
Aug-22	2376
Sep-22	2974
Oct-22	3013
Nov-22	2411
Dec-22	4411
Jan-23	4056
Feb-23	2850
Mar-23	2382
Apr-23	5106
May-23	2678
Jun-23	3162

The graph illustrates a consistent pattern in multinational enterprises' foreign direct investment (FDI) equity acquisition. In the first quarter of 2023, there was a notable increase in the sale of assessed shares, surpassing the projected figures for the upcoming fiscal year. However, it's important to highlight that sales experienced a significant drop in the fourth quarter, reaching approximately $2,382,000.00.

In April 2023, there was an uptick of $2,742.00, but by June 2023, sales declined to $3,162.00.

A comprehensive analysis conducted by reputable financial experts suggests that foreign investment may decrease due to the favorable trajectory of the Indian economy. According to current economic forecasts, the Indian economy is poised for a significant upturn, possibly in 2023 or 2024. This positive trend is expected to coincide with a corresponding increase in the value of the Indian Rupee.

The Indian government has implemented a series of strategic measures to enhance the global status of the Rupee. The stability of the Indian economy is not solely attributable to the efforts of institutions like the Reserve Bank of India (RBI) or the Federal Reserve System (Fed) in the United States. Additionally, the collaborative efforts of various stakeholders within the domestic market, such as companies, enterprises, and individuals, have played a pivotal role in shaping the current economic landscape.

Global events and multiple contributing factors have hurt the devaluation of the Indian Rupee and India's overall economic performance. The regulatory framework, which involves various governmental bodies and the esteemed Reserve Bank of India, is actively implementing strategic measures to restore and reinforce the foundations of financial stability. By strategically harnessing synergistic resources and fostering mutually beneficial partnerships, there is a promising opportunity to sustain significant economic growth and establish a strong foundation for price stability until 2024.