Why is the USD to INR Exchange Rate up today on 30th September 2022 (2nd half of September 2022)?

Though India recorded high GDP growth of 13.5% in July, the rupee has not reflected it. Most economists and analysts argue that the Indian economy is becoming more resilient. That being said, growth has to last for three consecutive quarters in a financial year actually to declare it as growth. The Reserve Bank of India (RBI), in collaboration with the Indian government and other supporting institutions, has established several strategies and initiatives to aid the Indian economy. The government has employed several strategies to strengthen the currency and economy, including raising interest rates and establishing trade restrictions.

USD to INR Exchange Rates
Date	Open	High	Low	Close
16-Sep-22	79.85	80.01	79.10	79.85
19-Sep-22	79.69	79.96	79.59	79.69
20-Sep-22	79.71	79.99	79.58	79.71
21-Sep-22	79.76	80.16	79.76	79.76
22-Sep-22	80.05	81.11	79.93	80.05
23-Sep-22	81.06	81.34	80.78	81.06
26-Sep-22	81.25	81.72	80.73	81.25
27-Sep-22	81.62	81.86	81.29	81.62
28-Sep-22	81.72	82.11	81.50	81.72
29-Sep-22	81.43	82.06	81.41	81.43
30-Sep-22	81.48	81.70	81.10	81.48

According to the graph and table above, a dollar is worth an average of 80.76 rupees, which is higher than the average for the first two weeks of September. This indicates that the rupee's performance has deteriorated. The rupee reached a low of 82.113 on September 28th, 2022, and a high of 79.09 on September 16th, 2022. Since September 19th, 2022, the exchange rate has been rising. This is a concerning development for the Indian economy and currency. In the last two weeks, the currency's value fluctuated by an average of 0.843 rupees daily (September 16th, 2022, to September 30th, 2022). Such a high variance shows the poor performance of the currency. The government and the RBI are doing everything possible to assist the currency's value rise. It will, however, take time.

There are several components that must function reasonably well if the currency is to be robust and stable. They are :

1. Crude Oil

India generally imports more than 80% of its crude oil demand from countries like the United Arab Emirates, Russia, and Saudi Arabia. The ports in India produce only 10 to 15 % of the total market. However, India has started to source crude oil from countries like Gabon, Colombia, and Canada, diversifying its natural oil supply. The growing trade barriers due to several unprecedented situations, including the Russia- Ukraine conflict, pandemic, and global energy shortage, have led to such a course of action. The prices also shot up to an all-time high of $120 per barrel. This price has dropped from around $70 to $80 per barrel. In the second quarter of 2022-23, India imported $722.54 million in oil from Brazil. America also relies on other countries for crude oil, importing more than 70% of its total oil consumption.

Prices have been decreasing, as evidenced by the graph and table below. Prices reached a high of $86.68 per barrel on September 21st, 2022, and a low of $76.25 per barrel on September 26th, 2022. This is a lower price than in the first two weeks of September. Crude oil is critical to every manufacturing, transportation, and related industry. Such costs can hinder production, drive inflation, and devalue the Indian rupee.

Crude Oil (in USD)
Date	Open	High	Low	Close
16-Sep-22	85.16	86.59	84.27	85.11
19-Sep-22	85.21	86.22	82.10	85.73
20-Sep-22	85.61	86.45	83.52	84.45
21-Sep-22	84.25	86.68	82.49	82.94
22-Sep-22	83.07	86.00	82.40	83.49
23-Sep-22	83.54	83.92	78.04	78.74
26-Sep-22	79.23	80.31	76.25	76.71
27-Sep-22	76.47	79.51	76.42	78.50
28-Sep-22	78.08	82.34	76.55	82.15
29-Sep-22	81.90	82.94	80.34	81.23
30-Sep-22	81.74	82.56	79.14	79.49

2. Gold imports

Since gold is the most adorned metal in the world, it holds a sentimental value for Indians. Several individuals started purchasing more gold in 2022 as they weren’t allowed to do so during the pandemic. When people start importing more gold, it affects the Indian economy negatively by increasing the inflation rates. To curb this, The government raised the gold import tax from 10.75% to 15%. To curb this, the low prices have balanced the tax hike, which has allowed people to continue to buy more gold.

The graph and table below show that gold prices have been declining. Gold costs $1653.17 per ounce, less than the first two weeks of September's average. Gold reached a high of $1680.10 per ounce on September 21st, 2022, and a low of $1620.40 on September 28th, 2022. With an increase in gold imports, inflation rates rise. As a result, the country's gold imports must be reduced.

Gold Rate (in USD)
Date	Open	High	Low	Close
16-Sep-22	1,660.40	1,674.90	1,651.70	1,671.70
19-Sep-22	1,661.80	1,669.40	1,658.50	1,666.20
20-Sep-22	1,659.70	1,659.70	1,659.70	1,659.70
21-Sep-22	1,665.50	1,680.10	1,664.60	1,664.60
22-Sep-22	1,668.30	1,670.80	1,668.30	1,670.80
23-Sep-22	1,667.00	1,667.00	1,645.30	1,645.30
26-Sep-22	1,623.30	1,623.30	1,623.30	1,623.30
27-Sep-22	1,632.20	1,636.60	1,626.70	1,626.70
28-Sep-22	1,620.40	1,660.40	1,620.40	1,660.40
29-Sep-22	1,657.00	1,662.60	1,640.00	1,658.50
30-Sep-22	1,661.70	1,672.70	1,658.00	1,662.40

3. GDP & Import/Export

Both trade balance and gross domestic product (GDP) are inextricably linked. They affect the country’s currency and the economy as every country imports and exports goods. When imports exceed exports, the currency's value falls, while when exports exceed imports, the currency's value rises. When the value of a currency falls, so does its purchasing power. This leads to a reduction in GDP

The graph below shows that the trade deficit has been growing unpredictably. From April to June 2022, imports and exports grew linearly, making a negligible difference in the trade deficit. In June 2022, India faced a $9.525 million shortfall. Historically, exports have been greater than imports; however, in July 2022, India's imports exceeded their exports. This is a concerning sign.

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
Jun-21	20.30	10.84
Jul-21	19.36	11.39
Aug-21	20.46	11.87
Sep-21	21.61	12.58
Oct-21	19.85	11.61
Nov-21	20.14	12.59
Dec-21	25.31	14.89
Jan-22	21.63	13.24
Feb-22	21.30	12.97
Mar-22	26.95	15.35
Apr-22	22.59	14.05
May-22	23.61	15.20
Jun-22	25.29	15.77
Jul-22	20.2	22.3

GDP Rate in India
Date	Rate (%)
Jul-19	6.25%
Aug-19	6.00%
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	13.5%

The currency has lost buying value as the country's imports outnumber its exports. As a result, performance has suffered. Even though the currency’s value has declined, GDP has climbed dramatically from 4.9% in June 2022 to 13.5% in July 2022. India has had the world's most excellent GDP growth rate. The efforts of the Indian government and the Reserve Bank of India have resulted in this. The RBI anticipates that GDP will stabilize and rise by 2023. This is a fantastic indication of the Indian economy. However, for the currency to acquire value, this increase must continue for three quarters.

4. Inflation rates

Another factor that influences the value of a currency is its inflation rate. When the GDP falls, inflation rises. Inflation has decreased from 7.01% in June 2022 to 6.71% in July 2022. It will, however, rise to 7% in August 2022. This is not consistent with the sharp increase in GDP. Because all of these factors are interconnected, determining the cause of this difference is difficult.

India's Inflation rates
Date	Percentage
Jul-21	5.59
Aug-21	5.3
Sep-21	4.35
Oct-21	4.48
Nov-21	4.91
Dec-21	5.66
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

US Inflation rates
Date	Percentage
Jul-21	5.4
Aug-21	5.3
Sep-21	5.4
Oct-21	6.2
Nov-21	6.8
Dec-21	7
Jan-22	7.5
Feb-22	7.9
Mar-22	8.5
Apr-22	8.3
May-22	8.6
Jun-22	9.1
Jul-22	8.5
Aug-22	8.3

The United States, like India, is experiencing inflation. In May 2022, the United States faced a record-high inflation rate of 9.1%. The Federal Reserve raised the repo rate by 75 basis points to combat inflation. This has limited inflation, expected to fall to 8.3% in August 2022. Because the United States performed relatively better in these parameters than India, the exchange rates are very high.

5. Interest rates

To combat inflation, the RBI raised repo rates by 50 basis points in July 2022. Interest rates rose from 4.4% to 4.9%. An increase in the repo rate raises banks’ lending and borrowing rates. Higher interest rates are expected to bring in a large amount of cash, which will help support the Indian economy. Due to the coronavirus pandemic, rates fell to an all-time low of 4% in 2020. Interest rates were raised to 5.4% in August 2022 due to increased repo rates. The RBI is expected to raise repo rates again this year.

RBI Bank Interest Rates
Date	Rate (%)
Feb-19	6.25%
Apr-19	6.00%
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	4.90%
Aug -22	5.40%

The US Federal Reserve, like the RBI, raised interest rates to help curb rising inflation rates. Seventy-five basis points increased their repo rate. The interest rate has risen to 2.33% as of August 2022. From June to August, the inflation rate fell due to this increase. The stark difference between India and the US in these factors has resulted in the Indian rupee's poor performance against the dollar.

US Fed Interest Rates
Date	Rate (%)
Jul-21	0.10
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	0.20
Apr-22	0.33
May-22	0.77
Jun-22	1.21
Jul-22	1.58
Aug-22	2.33

6. Foreign and Domestic Investment

As interest rates rise, foreign investment is projected to climb. This will have both advantages and disadvantages. When the RBI buys more foreign currency, the rupee falls in value, but when the RBI sells more foreign currency, the rupee appreciates. In 2021-22, foreign investments will amount to around $83 billion. Assets worth more than $100 billion will be included in the fiscal year 2022-23. This might imply that the rupee's value would continue to plummet.

India's FDI
Date	FDI (US$ Million)
Aug-21	6233
Sep-21	4505
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

According to the graph below, FDI equity inflows have been very volatile. While the influx increased from March to April, it decreased to $3978 million in June 2022. Unless the Indian economy stabilizes, FDI inflows are projected to stall. The Indian economy and currency will acquire resilience and acceleration in 2023 or 2024.

Various factors influence the value of the Indian rupee and the Indian economy. Because most of them are interrelated, it is challenging to study and assess each component to find the root reason for such poor performance. On the other hand, the government and the Reserve Bank of India are striving to reconstruct the Indian economy. Our task is to collaborate so that the currency and economy develop and remain stable by 2023.