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

Key points:

• The value of the Indian rupee has declined 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.

According to a comprehensive analysis by financial experts, there are significant prospects for a substantial transformation in India's economy in 2023. Despite a global economic downturn, the United States has demonstrated a notable resurgence. In a recent development, India's GDP has shown an impressive upswing, recording a remarkable growth rate of 13.5% in the most recent quarter. Notably, the Indian Rupee remained remarkably stable during this period with minimal fluctuations.

It's important to mention that financial analysts typically assess India's economic growth annually rather than through quarterly evaluations. The strategic partnership with the Reserve Bank of India (RBI) has proven to be highly productive for India's economy.

Additionally, recent policy initiatives implemented by the government, such as increasing interest rates and imposing tax restrictions, have yielded favorable outcomes for both the economy and the currency. As a result, these prudent measures have had a decidedly positive impact on the trajectory of the nation's economy and the stability of its currency.

USD to INR Exchange Rates
Date	Open	High	Low	Close
16-Oct-23	83.1995	83.2811	81.517	83.1995
17-Oct-23	83.2643	83.3027	83.192	83.2643
18-Oct-23	83.2686	83.2927	82.719	83.2686
19-Oct-23	83.1223	83.1962	83.019	83.1223
22-Oct-23	83.1598	83.1904	83.04	83.1598
23-Oct-23	83.0294	83.0943	82.947	83.0294
24-Oct-23	82.9878	83.1873	81.205	82.9878
25-Oct-23	83.171	83.2717	83.141	83.171
26-Oct-23	83.2825	83.2894	83.141	83.2825
30-Oct-23	83.4134	83.4134	83.224	83.4134
31-Oct-23	83.2965	83.331	83.225	83.2965

According to the most recent available data, it is evident that the current exchange rate between the US Dollar and the Indian Rupee (USD/INR) is at 83.23. The first part of October saw more price stability compared to the latter part of the same month. Between October 16, 2023, and October 23, 2023, the Indian Rupee maintained a relatively constant value against the US dollar. On October 30, 2023, the Indian Rupee experienced a significant upswing, reaching its highest point at $83.41 against the US dollar. However, after several events, the currency faced a considerable decline, ultimately hitting a low point of 82.98 on October 24, 2023. From October 24, 2023, to October 31, 2023, we observed a modest change of 0.327%.

The asset in question has exhibited a 14-day historical volatility with an average daily fluctuation of 0.053 points, and its standard deviation is at 0.123 points, indicating notable 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 primarily sources its crude oil imports from the United Arab Emirates, Russia, and Saudi Arabia, collectively constituting more than 80% of its total oil imports. However, it is essential to highlight that India's share in the global oil trade remains relatively modest, hovering at around 10%. India has strategically worked on diversifying its sources of crude oil imports by strengthening its procurement channels from significant suppliers like Gabon, Colombia, Canada, Nigeria, and Iraq.

The primary motivation for pursuing this strategic approach is to reduce the risks of relying heavily on a limited group of oil-producing nations. Various factors, including ongoing trade tensions between Russia and Ukraine, the persistent impact of the influenza outbreak, and enduring challenges within the oil industry, have significantly influenced the current global economic landscape. This complex economic environment has created multifaceted and demanding conditions for international trade.

The price of crude oil in the market has experienced a significant increase, surging by more than 100% from a low point of $70 per barrel to a peak of $120 per barrel. According to projected financial forecasts, India is set to allocate $722.54 million to Brazil in the first quarter of the fiscal year 2023-2024. This allocation is a crucial component of India's strategic plan to secure essential oil resources.

Upon thoroughly examining both 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 occurred on October 18, 2023, at $89.37, while the lowest was on October 31, 2023, at $80.44, resulting in a 9.9% change. The average price during this period is calculated to be $85.87. It is also notable that the prices declined consecutively from October 29, 2023, to October 31, 2023.

Crude Oil (in USD)
Date	Open	High	Low	Close
16-Oct-23	87.06	87.75	85.6	86.66
17-Oct-23	87.81	89.88	87.2	88.32
18-Oct-23	88.24	90.68	86.6	89.37
19-Oct-23	90.28	90.78	88.33	88.75
22-Oct-23	88.00	88.29	85.35	85.49
23-Oct-23	86.15	86.3	82.94	83.74
24-Oct-23	83.69	85.56	82.08	85.39
25-Oct-23	85.37	85.59	82.56	83.21
26-Oct-23	83.53	85.9	83.1	85.54
29-Oct-23	85.00	85.3	81.82	82.31
30-Oct-23	82.59	83.37	80.74	81.02
31-Oct-23	81.48	83.42	80.3	80.44

It's important to emphasize that the Indian economy and its socio-economic structure are closely intertwined with the performance of the crude oil market, exerting a significant influence. Consequently, any adverse developments in this industry have the potential to impact productivity levels negatively and simultaneously put upward pressure on prices. Additionally, it is crucial to underline that the current conditions may lead to a depreciation of the Indian Rupee.

2. Gold imports

The cultural and economic significance of gold is greatly amplified by its extensive use in Indian jewelry. In the years 2022 and 2023, there has been growing concern among the populace regarding their insufficient gold holdings in light of the looming pandemic. The Indian economy has declined due to the recent surge in gold prices and imports. Consequently, the government has imposed an additional 15% duty on gold imports, further burdening the already high tax rates.

Interestingly, despite the increased taxation, the demand from buyers has remained strong, mainly because of the substantial drop in the value of gold, which effectively offsets the impact of the tax hike. The provided chart and table depict a continuous upward trajectory in gold prices. In the current market context, the median gold price stands at $1995.45. Our comprehensive analysis has unveiled significant price fluctuations in the gold market.

Gold Rate (in USD)
Date	Open	High	Low	Close
16-Oct-23	1,914.30	1,925.80	1,914.30	1,922.70
17-Oct-23	1,935.00	1,957.90	1,935.00	1,955.30
18-Oct-23	1,950.10	1,977.70	1,945.70	1,968.40
19-Oct-23	1,981.10	1,988.60	1,980.40	1,982.50
22-Oct-23	1,976.20	1,978.90	1,972.90	1,976.30
23-Oct-23	1,970.30	1,975.00	1,970.30	1,975.00
24-Oct-23	1,971.20	1,985.30	1,971.20	1,984.10
25-Oct-23	1,988.20	1,988.20	1,980.40	1,987.20
26-Oct-23	1,988.60	1,988.60	1,988.60	1,988.60
29-Oct-23	2,004.10	2,004.10	1,992.50	1,996.20
30-Oct-23	1,996.50	2,001.00	1,983.70	1,985.20
31-Oct-23	1,990.50	1,990.50	1,977.80	1,978.80

The surge in gold prices began on October 16, 2023, and by October 19, prices started to decline. The highest recorded gold price was on October 29, 2023, at $1996.20, while the lowest was on October 16, 2023, at $1922.70. During this period, the interquartile range is 979.65, and the standard deviation is 497.67.

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, exerts a significant influence on 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).

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 the growth of this sector, it is crucial to inject additional funds. 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.

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

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), there is an expected gradual deceleration in the economic growth rate 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. During this fiscal year, there has been a noteworthy trajectory in crucial economic indicators.

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 17.13% change in these economic indicators from November 2022 to September 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

To gain a comprehensive understanding of the intricate and interconnected dynamics between GDP and inflation, it is imperative to conduct a thorough analysis. This analysis involves the identification and examination of 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 rapid expansion of the economy. 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

Recent economic data has revealed a notable and concerning increase 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 seriousness of the situation and taking into account 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%, marking its most significant decline in the past three years.

Furthermore, it is worth noting that the devaluation of the Indian rupee has had a simultaneous effect on 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, it is expected that the current interest rate, standing at 6.75%, will undergo a significant upward trajectory shortly. Our projections indicate that by December 2023, the interest rate is poised to reach 6.90%. The anticipation in the market is 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

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 seen a substantial increase of 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 upward trend in foreign direct investment (FDI) often coincides with rising interest rates. It's essential to conduct a thorough financial analysis to evaluate the pros and cons of this scenario. The Reserve Bank of India has recently announced its strategic objective to increase its foreign currency reserves, which will exert downward pressure on the value of the Indian rupee. According to the Reserve Bank of India's estimates, foreign investments in 2022 are anticipated to experience a significant uptick, with an expected increase of approximately $83 billion, surpassing the levels observed in the previous year. This notable growth can be primarily attributed to the substantial surge in foreign currency sales. Assuming that the Reserve Bank of India's assets will surpass the significant threshold of $100 billion by the end of the fiscal year 2022-2023, we will likely observe a gradual rupee depreciation, given the prevailing 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 displays a consistent trend in foreign direct investment (FDI) equity acquisition by multinational enterprises. During the first quarter of 2023, there was a notable surge in the sale of evaluated shares, exceeding the projected figures for the upcoming fiscal year. Nevertheless, it's important to emphasize that sales experienced a significant decline in the fourth quarter, plummeting to approximately $2,382,000.00.

In April 2023, there was a minor increase of $2,742.00, but by June 2023, sales dwindled to $3,162.00. A comprehensive analysis carried out by respected 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 on track for a substantial upswing, likely in 2023 or 2024. This optimistic trend is expected to align with a corresponding rise in the value of the Indian rupee.

The Indian government has taken a series of strategic steps to boost the international standing of the rupee. The stability of the Indian economy isn't solely due 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 efforts of various stakeholders in the domestic market, including companies, businesses, and individuals, have played a crucial role in shaping the current economic situation.

Various global events and various contributing factors have negatively impacted the devaluation of the Indian rupee and India's overall economic performance. The regulatory framework, involving different government bodies and the esteemed Reserve Bank of India, is actively putting strategic measures in place to restore and reinforce the fundamentals of financial stability.