Why is the USD to INR Exchange Rate Up today on 31st January 2023 (2nd half of January 2023)?

Key points:

• The rupee is deteriorating against the US dollar.
• In an effort to reduce inflation in the United States, the Federal Reserve has raised interest rates to 4%.
• Both the US and Indian inflation rates are falling.
• RBI is expected to increase the interest rate by 25 bps in February 2023.
• An economic slowdown was observed in India during the most recent quarter.

Numerous experts believe 2023 will usher in a new era of prosperity for economies everywhere. Even though economies everywhere are faltering, the American economy is showing signs of improvement. The rupee value remained unchanged despite 13.5% QoQ growth in India's GDP. Experts agree that India's economic future is bright and that expansion should occur once a year rather than every three months. The Reserve Bank of India (RBI) is a government agency that has worked with other Indian institutions to develop policies and programs designed to boost the country's economy. The currency and economy have benefited from the government's decision to increase interest rates and restrict trade.

USD to INR Exchange Rates
Date	Open	High	Low	Close
16-Jan-23	81.28	81.74	81.13	81.28
17-Jan-23	81.65	81.87	81.54	81.65
18-Jan-23	81.53	81.82	81.16	81.53
19-Jan-23	81.44	81.56	81.23	81.44
20-Jan-23	81.24	81.36	80.97	81.24
23-Jan-23	80.98	81.49	80.88	80.98
24-Jan-23	81.49	81.74	81.38	81.49
25-Jan-23	81.60	81.77	81.47	81.60
26-Jan-23	81.50	81.57	81.36	81.50
27-Jan-23	81.45	81.67	81.42	81.45
30-Jan-23	81.51	81.72	81.46	81.51
31-Jan-23	81.5799	82.0591	81.537	81.5799

We found that the current exchange rate for one US dollar is 81.46 Indian rupees. This month's prices had declined compared to the second half of December, when prices remained relatively stable. Proof positive that the rupee has the potential to become a respected currency. On January 16, 2023, the value of one rupee surpassed the previous high by 0.01%, hitting 81.874. On January 23, 2023, the value of one rupee dropped to a new all-time low of 80.88. We are concerned about the long-term health of the Indian economy and currency due to recent fluctuations in the value of the Indian rupee. Every day over the past two weeks, the value has changed by an average of 0.35 points. The Reserve Bank of India (RBI), India's central bank, and the government are both trying to obtain a stable value for the rupee. Remember that things mayremain constant for a while. The U.S. Federal Reserve is just one of many central banks around the world that has taken similar action in response to 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. However, India's ports only account for about 10% of the country's total trade. India now also imports crude oil from countries like Gabon, Colombia, and Canada, in addition to long-standing suppliers like Nigeria and Iraq. A rise in trade barriers can be attributed to several factors, including the ongoing trade war between Russia and Ukraine, the global flu epidemic, and the global oil crisis. The price of a barrel of crude oil has hit a new high of $120. A barrel of oil has dropped significantly from $70 to $80. In exchange for Brazilian oil, India will have paid Brazil $722.54 million by the end of the second quarter of 2022-2023. The United States imports over 70% of its crude oil needs.

Prices have been decreasing, as shown in the table and graph below. There was an increase in the price of a barrel of oil from January 19 (when it was $78.13) to January 23 (when it was $82.64), 2023. Since the beginning of the month, the cost has increased. Today's economy and way of life couldn't function without crude oil. It could lead to lower workplace productivity, higher prices, and the devaluation of the Indian rupee.

Crude Oil (in USD)
Date	Open	High	Low	Close
16-Jan-23	80.10	80.22	78.53	78.85
17-Jan-23	80.10	81.23	78.53	80.18
18-Jan-23	80.97	82.38	78.94	79.48
19-Jan-23	79.14	81.18	78.13	80.33
20-Jan-23	80.60	81.64	79.69	81.31
23-Jan-23	81.79	82.64	81.05	81.62
24-Jan-23	81.62	82.22	79.66	80.13
25-Jan-23	80.26	81.23	79.45	80.15
26-Jan-23	80.48	82.14	79.92	81.01
27-Jan-23	81.22	82.48	79.04	79.68
30-Jan-23	80.04	80.49	77.66	77.9

2. Gold imports

Gold's widespread use in jewelry has given it a symbolic meaning for the people of India. The 2022 population's sudden rush to stockpile gold was a direct result of the fact that they had failed to do so before the pandemic. As inflation soars and gold imports rise, the Indian economy suffers. The government's response was to raise the tax on gold imports from 10.75% to 15%. People still buy gold despite the tax hike because low prices have more than offset the higher taxes.

The increase in gold prices is shown in the accompanying table and graph. Today's price of gold, $1922.9, is higher than the average price for the last two weeks of November. Gold's price ranged from $1941.20 to $1903.10 from January 18-25, 2023. Inflation is set off immediately when gold is imported from abroad. To prevent inflation, the Federal Reserve should limit the number of gold governments can buy.

Gold Rate (in USD)
Date	Open	High	Low	Close
16-Jan-23	1,920.10	1,920.10	1,912.40	1,912.40
17-Jan-23	1,920.10	1,920.10	1,905.20	1,907.20
18-Jan-23	1,911.10	1,911.10	1,903.10	1,904.40
19-Jan-23	1,922.10	1,931.80	1,922.10	1,922.10
20-Jan-23	1,922.10	1,928.50	1,921.40	1,926.40
23-Jan-23	1,926.50	1,927.10	1,915.00	1,927.10
24-Jan-23	1,931.80	1,936.80	1,931.80	1,933.90
25-Jan-23	1,941.20	1,941.20	1,939.80	1,941.20
26-Jan-23	1,936.60	1,937.10	1,927.10	1,929.10
27-Jan-23	1,928.60	1,928.60	1,928.60	1,928.60
30-Jan-23	1928.3	1933.6	1920.3	1922.9

3. GDP & Import/Export

The trade deficit's impact on GDP can be seen in many ways and is intertwined with other factors. The value of a country's currency and the state of its economy can fluctuate in response to its import and export levels. A currency's value falls when imports exceed exports and rises when the inverse occurs. When a currency's value drops, its holders experience hardship because their money is no longer worth as much. Thus, GDP will fall.

The following graph illustrates how difficult it is to foretell the magnitude of the trade deficit. The percentage growth of imports from India between March and July was especially striking. The situation is looking up, though. October of 2022 marked the first month in which exports were worth more than imports. This surplus contributed $8.7 million to the widening of India's trade deficit. Historically, the gap between exports and imports has stood out. At any rate, September's positive delta is encouraging.

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
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
Nov-22	30.70	21.70

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

Trade deficits force countries to devalue their currencies. It reduces the efficiency of routine tasks. Despite the decline in currency value, the GDP rose from 5.4% in February 2022 to 13.5% in July 2022. The growth of the Indian economy has been spectacular. The plan's success is attributable to the Indian government. The RBI predicts growth will slow significantly by 2023. Much about India's economy and its prospects can be gleaned in this way. The currency's value will rise once this trend has persisted for three full calendar quarters.

4. Inflation rates

The value of a currency may go up or down as GDP falls and inflation rates rise. Lower than June's 7.01 percent annual inflation rate, July's rate of 6.71 percent was the weakest since January 2022. The rate stood at 6.1% in January of that year, but it had dropped to 5.7% by December of the following year. Compared to the economy's healthy growth, that is not acceptable. Because of their interconnected nature, it can be challenging to isolate a single cause of this variation.

India's Inflation rates
Date	Percentage
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
Dec-22	5.72

US Inflation rates
Date	Percentage
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
Dec-22	8.00

Both the United States and India have experienced significant inflation in recent years. The United States hit a new record high annual inflation rate of 9.1 percent in May 2022. The Federal Reserve increased the repo rate by 75 basis points to slow inflation. The November 2022 inflation rate was the lowest it had been in three years, at 7.1%. According to the dollar's value compared to the Indian rupee, the United States outperformed India.

5. Interest rates

The Reserve Bank of India increased the repo rate by 50 basis points in July 2022 to curb inflation. They raised the interest rate from 4.4% to 4.9%. When the repo rate increases, banks will charge more for deposits and lend at higher interest rates to compensate. Many people in India think rising interest rates is an excellent way to stimulate the country's economy. The 2020 coronavirus pandemic brought on the worst recorded speed of 4%. An increase from 5.25% to 5.25% in the repo rate in August 2022 resulted in a rise from 5.4% to 5.4% in the following month. In December 2022, the rate adjustment will take place, increasing the interest rate to 6.50%. Consensus suggests the Reserve Bank of India (RBI) will raise the repo rate again in February, following the Union Budget.

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

Interest rates have been raised by the Reserve Bank of India and the Federal Reserve of the United States, respectively, to reduce inflation. The repo rate increased by a whopping 75%. The interest rate has risen to 4% as of October 2022. The improvement has led to lower inflation. It is widely believed that the Federal Reserve will keep raising interest rates for as long as it sees fit to protect the health of the American economy. The significant cultural and linguistic gaps between the United States and India are mainly responsible for the fall 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

Increasing interest rates increase the volume of FDI (foreign direct investment). Any positives or negatives associated with this situation would be similar to those associated with any other case. The Reserve Bank of India (RBI) plans to devalue the rupee by increasing its purchases of foreign currency. An estimated $83 billion more will be invested abroad in 2022 than in 2021 due to the RBI's decision to increase the sale of foreign currency, which has grown the value of the rupee. By the end of the 2022–23 fiscal year, the RBI will have more than $100 billion in assets. It could be the beginning of the rupee's slow and steady decline in value.

India's FDI
Date	FDI (US$ Million)
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
Jul-22	4971
Aug-22	2376
Sep-22	2974

The following chart shows how equity inflows from FDI firms tend to follow a cyclical pattern. There was an increase in earnings from March to April, but that decline was reversed by September 2022, when revenues totaled $2,974,000.00. It is predicted that foreign investment will fall even further once the Indian economy improves. The Indian economy and currency will significantly improve in 2023 or 2024.

The Indian Minister of Finance has stated, "The dollar's worth has increased. The value of the rupee won't change." Since this is the case, the second sentence is correct. Few institutions are more critical to their respective economies than the Reserve Bank of India (RBI) in India and the Federal Reserve System (Fed) in the United States. The Indian economy and the rupee value are susceptible to developments in other countries. To diagnose the root of poor performance, it investigates a wide variety of factors, many of which are interconnected. However, the Reserve Bank of India and the government are taking steps to restore order. As a group, we can improve the outlook for long-term economic growth and currency stability through 2023.