Why is the USD to INR Exchange Rate up today on 31st December 2022 (2nd half of December 2022)?

Key points:

• As time passes, the dollar becomes less valuable when converted to India's currency.
• The Federal Reserve has increased interest rates to 4% to slow inflation in the United States.
• The inflation rates in India and the United States seem to be trending downward.
• GDP in India has fallen in the most recent quarter.

While economies elsewhere are faltering, the American one is beginning to show green shoots. Last month, India's GDP grew by 13.5 percent, but the rupee did not appreciate in response. Analysts are optimistic about India's economy. Uninterrupted growth for a year is necessary, not just quarterly growth. The Reserve Bank of India (RBI) has developed plans and projects to better the Indian economy with input from the Indian government and other organizations. The government's decision to raise interest rates and limit trade has helped the currency and the economy.

USD to INR Exchange Rates
Date	Open	High	Low	Close
16-Dec-22	82.86	83.00	82.59	82.86
19-Dec-22	82.73	82.92	82.56	82.73
20-Dec-22	82.58	82.88	82.54	82.58
21-Dec-22	82.64	82.96	82.55	82.64
22-Dec-22	82.88	82.99	82.64	82.88
23-Dec-22	82.87	82.98	82.72	82.87
26-Dec-22	82.60	82.88	81.72	82.60
27-Dec-22	82.90	82.91	82.63	82.90
28-Dec-22	82.78	82.92	82.69	82.78
29-Dec-22	82.85	82.90	82.74	82.85
30-Dec-22	82.84	82.84	82.55	82.84
31-Dec-22	82.697	82.697	82.697	82.697

We calculated the current exchange rate for one US dollar to 82.73 Indian rupees. The second half of December saw relatively stable prices, but those gains have since slowed. Evidence that the rupee can develop into a successful currency. The rupee reached a new record high of 81.72 on December 26, 2022. The value of the rupee hit a record low of 83.00 on December 16, 2022. The recent fluctuations in the exchange rate have us worried about the future of India's economy and currency. The average daily change in value over the past two weeks has been 0.07 rupees. It all depends on how big the gap is, but there could be room for improvement. The Reserve Bank of India (RBI), the country's central bank, and the government collaborate to keep the currency's value rising. You must remember that it will take time before you notice any changes. The Federal Reserve in the United States has also taken similar action to curb inflation.

Several parts must work well 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

Countries like the United Arab Emirates (UAE), Russia, and Saudi Arabia typically supply more than 80% of India's crude oil needs. India's ports only handle about 10%-15% of the country's total trade. India used to only import crude oil from Nigeria and Iraq but has since diversified its supply to include countries like Gabon, Colombia, and Canada. Trade barriers have increased due to several distinct crises, including the conflict between Russia and Ukraine, the global pandemic, and the world's oil shortage. The price of a barrel of oil soared to a new high of $120. The cost of a barrel has dropped from around $70 to $80. Indian oil import payments to Brazil totaled $722.54 million by the end of the second quarter of 2022-2023. The United States acquires more than seventy percent of its crude oil needs abroad.

As the table and graph below demonstrate, costs have been dropping. On December 27, 2022, a barrel of oil was $81.18, up from the price of $73.33 on December 16, 2022. The cost has risen since the beginning of the month. Crude oil is essential to modern life, as it is used in countless industries and daily activities. Reduced productivity in the workplace, higher prices, and a weaker Indian rupee could all result from this cost.

Crude Oil (in USD)
Date	Open	High	Low	Close
16-Dec-22	76.37	76.57	73.33	74.29
19-Dec-22	74.50	76.41	73.81	75.19
20-Dec-22	75.70	76.75	74.31	76.09
21-Dec-22	75.99	78.61	75.80	78.29
22-Dec-22	78.43	79.90	77.03	77.49
23-Dec-22	78.18	80.33	77.98	79.56
27-Dec-22	79.90	81.18	79.16	79.53
28-Dec-22	79.89	79.92	77.30	78.96
29-Dec-22	78.82	78.82	76.79	78.40
30-Dec-22	78.73	80.67	77.71	80.51

2. Gold imports

Since gold jewelry is widely worn in India, the precious metal has taken on a special meaning for the country's people. After failing to do so during the pandemic, people in 2022 began storing gold. When India imports are more gold, inflation rises, and the Indian economy suffers. To counter this, the government increased the tax on gold imports from 10.75% to 15%. People still buy gold despite the price increase because low prices have more than made up for the higher taxes.

The decline in gold prices is depicted in the accompanying table and graph. An ounce of gold is selling for $1803.38, which is higher than its average price over the last two weeks of November. Gold's price ranged from $1832.30 to $1777.90 from December 16-30, 2022. Increased gold imports from abroad directly cause inflation. The central bank should limit how much gold the government can buy.

Gold Rate (in USD)
Date	Open	High	Low	Close
16-Dec-22	1,777.90	1,791.40	1,777.90	1,790.00
19-Dec-22	1,791.60	1,796.30	1,785.60	1,787.70
20-Dec-22	1,786.50	1,821.40	1,786.50	1,815.90
21-Dec-22	1,817.40	1,821.40	1,814.40	1,815.90
22-Dec-22	1,818.10	1,818.10	1,785.00	1,787.00
23-Dec-22	1,794.30	1,802.80	1,794.10	1,795.90
27-Dec-22	1,803.40	1,826.30	1,803.40	1,814.80
28-Dec-22	1,803.20	1,807.90	1,803.10	1,807.90
29-Dec-22	1,805.80	1,819.50	1,805.80	1,819.50
30-Dec-22	1,821.80	1,832.40	1,819.80	1,830.10

3. GDP & Import/Export

The trade gap's effects on GDP are complex and interrelated. When a country shifts its import and export patterns, its currency and economy follow suit. The currency value falls when imports exceed exports and rises when the inverse occurs. When the value of a currency falls, its holders experience hardship because they can no longer buy as much with their money. GDP will fall as a result.

The following chart shows how difficult it is to estimate the magnitude of the trade deficit. Indian imports rose sharply between March and July. Things are looking up, however. The value of exports was higher than the value of imports in October of 2022. As a result of this new surplus, India's trade deficit has widened by $8.7 million. Since the beginning, the gap between exports and imports has stood out more than the rest. In any case, September's positive delta is encouraging.

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
Feb-22	19.40	25.00
Mar-22	29.60	25.20
Apr-22	25.10	46.10
May-22	32.20	52.70
Jun-22	24.60	45.50
Jul-22	20.20	22.30
Aug-22	24.30	27.10
Sep-22	29.7	28.10
Oct-22	24.60	15.90

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

A fall in the value of the local currency was inevitable, given the surplus of imported goods over exports. It's affecting the efficiency of daily life. Despite a drop in currency value, GDP rose from 5.4% in February 2022 to 13.5% in July 2022. The Indian economy is growing at a rate never seen before. The success of this plan can be attributed to the efforts of the Indian government. The RBI anticipates a deceleration, if not acceleration, in economic growth by 2023. Doing so can gather a wealth of information about India's economic climate. The currency can only rise once this trend has persisted for three full calendar quarters.

4. Inflation rates

Depending on the inflation rate, the value of a currency may rise or fall with a drop in GDP, and inflation increases. The annual inflation rate dropped 6.71 percent in July 2022 from 7.01 percent in June 2022. However, by the following November, that figure had fallen to 5.8%. Contrast that with the healthy growth of the economy. The complex interplay of these variables makes it difficult to isolate a single cause for this difference.

India's Inflation rates
Date	Percentage
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	7.00
Sep-22	7.41
Oct-22	6.77
Nov-22	5.88

US Inflation rates
Date	Percentage
Nov-21	6.80
Dec-21	7.00
Jan-22	7.50
Feb-22	7.90
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

Inflation is a problem in both India and the United States. The US inflation rate hit a new record high of 9.1% in May 2022. To bring inflation under control, the Federal Reserve raised the repo rate by 75 basis points. The inflation rate reached a three-year low of 7.1% in November 2022. Currency exchange rates show that the United States outperformed India in these areas.

5. Interest rates

The RBI raised repo rates by 50 basis points in July 2022 to slow inflation. There was a rise in interest rates from 4.4% to 4.9%. When the repo rate increases, banks will charge more for deposits and lend at a higher interest rate. Increasing interest rates is widely seen as a way to stimulate the Indian economy by luring more substantial investment capital. Because of the coronavirus pandemic in 2020, the lowest recorded speed ever was 4%. Interest rates increased to 5.4% in August 2022 after the repo rate increased to 5.25%. Since then, absolutely nothing has changed. According to conventional wisdom, the Reserve Bank of India (RBI) is expected to raise its repo rate once more 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	5.40%
Aug -22	5.40%

To counteract inflation, the Reserve Bank of India and the Federal Reserve of the United States raised interest rates. The repo rate increased by a whopping 75%. The rate of interest has risen to 4% as of October 2022. The inflation rate has decreased as a result of this boost. It is widely anticipated that the Federal Reserve will continue its rate-hiking policy for as long as it sees fit to guarantee the health of the U.S. economy. The significant cultural and linguistic gaps between India and the United States contribute significantly to the depreciation of the Indian rupee against the dollar

US Fed Interest Rates
Date	Interest Rate
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	0.2
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	4.00

6. Foreign and Domestic Investment

Rising interest rates are correlated with increased foreign direct investment (foreign direct investment). This situation has pros and cons, just as there are any other. The value of the rupee will decrease if the RBI buys more foreign currency. Since the RBI has decided to sell more foreign currency, the value of the rupee has increased, and approximately $83 billion will be invested abroad in 2021 and 2022. More than $100 billion in assets will be transferred to the RBI in the fiscal year 2022-23. It could be a precursor to further rupee devaluation.

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

The chart below shows how FDI equity inflows can change over time. From March to April, the incoming sum rose, but by June of 2022, it had fallen to $3,978,000,000. Investment from overseas is forecast to only decline once India's economy improves. India's economy and currency will strengthen and advance rapidly in 2023 or 2024.

In the words of India's finance minister, "The value of the dollar has risen recently. Value of the rupee will not decrease." The second sentence is correct because of what has been stated above. India's Reserve Bank of India (RBI) and the United States Federal Reserve System (Fed) are both essential to their respective economies. When things go wrong in other countries, it can significantly impact the value of the Indian rupee and the Indian economy. Finding the cause of poor performance requires investigating many possible explanations, many of which are interconnected. However, the government and the Reserve Bank of India are taking the necessary steps to restore order. The chances of long-term economic growth and stable currency until 2023 can be improved if we all pitch in.