Why is the USD to INR Exchange Rate up today on 14th October 2022 (1st half of October 2022)?

Despite India's high GDP growth of 13.5% in July, the rupee has not reflected it. Most economists and researchers believe that the Indian economy is getting more robust. However, for growth to be declared as such, it must endure for three consecutive quarters in a fiscal year. In partnership with the Indian government and other supporting organizations, the Reserve Bank of India (RBI) has devised various plans and initiatives to improve the Indian economy. The government has used different methods to strengthen the currency and economy, including hiking interest rates and imposing trade restrictions.

USD to INR Exchange Rates
Date	Open	High	Low	Close
03-Oct-22	81.52	82.06	81.41	81.52
04-Oct-22	81.50	81.86	81.27	81.50
05-Oct-22	81.47	81.83	81.27	81.47
06-Oct-22	81.65	82.48	81.44	81.65
07-Oct-22	82.35	82.63	82.05	82.35
10-Oct-22	82.83	83.06	82.26	82.83
11-Oct-22	82.42	82.75	82.14	82.42
12-Oct-22	82.27	82.62	82.15	82.27
13-Oct-22	82.20	82.89	82.12	82.20
14-Oct-22	82.19	82.61	82.12	82.19

According to the graph and table above, a dollar is worth an average of 80.76 INR, which is higher than the average for the first two weeks of September. It suggests that the performance of the rupee has deteriorated. The rupee fell to 83.063 on October 10, 2022, then rose to 81.26 on October 4, 2022. The exchange rate has been climbing since October 3, 2022. It is a worrying trend for the Indian economy and currency. The currency's value has varied by an average of 0.283 rupees daily during the previous two weeks (October 3, 2022, to October 14, 2022). A significant variance indicates the currency's lousy performance. 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 needs from nations such as the UAE, Russia, and Saudi Arabia. India's ports produce just 10 to 15% of the entire market. However, India has begun to source crude oil from nations such as Gabon, Colombia, and Canada to diversify its natural oil supply. Growing trade obstacles due to various unique crises, such as the Russia-Ukraine conflict, pandemic, and global oil deficit, have prompted such action. Prices also reached an all-time high of $120 per barrel. This price has fallen from around $70 to $80 per barrel. India purchased $722.54 million in oil from Brazil in the second quarter of 2022-23. America also imports more than 70% of its total crude oil usage from foreign countries.

Prices have been falling, as seen by the graph and table below. Prices peaked at $93.64 per barrel on October 10, 2022, and dropped to $80.87 per barrel on October 3, 2022. It is a greater price than the previous month. Every manufacturing, transportation, and associated business relies on crude oil. Such expenses can impede productivity, fuel inflation, and depreciate the Indian rupee.

Crude Oil (in USD)
Date	Open	High	Low	Close
03-Oct-22	81.02	84.56	80.87	83.63
04-Oct-22	83.22	86.98	83.22	86.52
05-Oct-22	86.37	88.42	85.42	87.76
06-Oct-22	88.08	89.07	87.04	88.45
07-Oct-22	88.93	93.31	88.00	92.64
10-Oct-22	93.48	93.64	90.54	91.13
11-Oct-22	91.14	91.35	87.91	89.35
12-Oct-22	88.67	90.07	86.28	87.27
13-Oct-22	87.08	89.66	85.56	89.11
14-Oct-22	89.27	89.73	85.20	85.61
03-Oct-22	81.02	84.56	80.87	83.63

2. Gold imports

Gold has sentimental meaning for Indians since it is the most decorated metal in the world. Several people began acquiring additional gold in 2022 after being prohibited from doing so during the epidemic. When people start to import more gold, it negatively impacts the Indian economy by boosting inflation rates. To combat this, the government increased the import duty on gold from 10.75% to 15%. To counteract this, the low prices have balanced the tax increase, allowing individuals to continue to acquire more gold.

Gold prices have been dropping, as shown in the graph and table below. Gold prices are $1685.82 per ounce, less than the average for the first two weeks of September. On October 4, 2022, gold achieved a high of $1728.70 per ounce and a low of $1640.00 on October 14, 2022. Inflation rates grow as gold imports increase. As a result, gold imports into the nation must be limited.

Gold Rate (in USD)
Date	Open	High	Low	Close
03-Oct-22	1,667.20	1,700.00	1,661.90	1,692.90
04-Oct-22	1,701.20	1,728.00	1,696.00	1,721.10
05-Oct-22	1,724.10	1,726.60	1,703.00	1,711.40
06-Oct-22	1,721.00	1,723.30	1,709.10	1,711.70
07-Oct-22	1,710.10	1,710.10	1,693.70	1,700.50
10-Oct-22	1,693.40	1,693.40	1,667.00	1,667.30
11-Oct-22	1,661.80	1,678.70	1,661.00	1,678.70
12-Oct-22	1,668.00	1,672.70	1,668.00	1,670.30
13-Oct-22	1,675.20	1,675.30	1,641.50	1,670.00
14-Oct-22	1,665.30	1,667.00	1,640.00	1,641.70

3. GDP & Import/Export

The trade deficit and the gross domestic product (GDP) are intricately intertwined. They impact the country's currency and economy since every country imports and exports things. When imports exceed exports, the currency's value decreases, whereas when exports exceed imports, the currency's value rises. When a currency's value falls, so does its purchasing power. It results in a decrease in GDP.

The graph below indicates that the trade imbalance has been increasing unpredictably. Imports and exports expanded linearly from April to June 2022, causing a minor impact on the trade imbalance. India faces a $2.8 million shortage in August 2022. Historically, exports have been bigger than imports; however, India's imports overtook exports in July 2022. It is a troubling indicator

India: Imports & Exports (in US$ Million)
Date	Export (US$ Million)	Import (US$ Million)
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
Aug-22	24.3	27.1

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%

As the country's imports surpass its exports, the currency has lost purchasing power. Performance has degraded as a result. Despite the currency's depreciation, GDP has increased rapidly from 4.9% in June 2022 to 13.5% in July 2022. India has the world's highest GDP growth rate. It is the consequence of the efforts of the Indian government and the Reserve Bank of India. The RBI expects GDP to stabilize and increase by 2023. It is an excellent indicator of the Indian economy. However, the growth must last three quarters for the currency to gain value.

4. Inflation rates

The inflation rate is another element that determines the value of a currency. Inflation rises when GDP declines. In July 2022, inflation fell from 7.01% in June 2022 to 6.71%. However, it rose to 7.41% in September 2022. It is in contrast to the significant growth in GDP. It is difficult to determine the origin of this disparity because all of these components are interrelated.

India's Inflation rates
Date	Percentage
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	7.00
Sep-22	7.41
Sep-21	4.35

US Inflation rates
Date	Percentage
Sep-21	5.40
Oct-21	6.20
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
Sep-21	5.40

Inflation is a problem in the United States, as it is in India. The United States suffered a record-high inflation rate of 9.1% in May 2022. The Federal Reserve hiked the repo rate by 75 basis points to fight inflation. As a result, inflation is predicted to decline to 8.2% in September 2022. The exchange rates are exceptionally high since the United States did substantially better in these aspects than India.

5. Interest rates

The RBI hiked repo rates by 50 basis points in July 2022 to combat inflation. Rates increased from 4.4% to 4.9%. A rise in the repo rate boosts banks' lending and borrowing rates. Higher interest rates are projected to generate a large amount of cash, aiding the Indian economy. Rates decreased to an all-time low of 4% in 2020 due to the coronavirus pandemic. Interest rates were hiked to 5.4% in August 2022 due to higher repo rates. This year, the RBI is projected to boost repo rates once more.

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%

Like the RBI, the Federal Reserve of the United States hiked interest rates to assist slow-growing inflation rates. Seventy-five basis points raised their repo rate. As of August 2022, the interest rate has climbed to 2.33%. Because of this rise, the inflation rate dropped from June to August. The dramatic divergence in these characteristics between India and the US has resulted in the Indian rupee's dismal 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

Foreign investment is expected to increase as interest rates rise. It will have both benefits and drawbacks. The rupee depreciates as the RBI purchases more foreign currency, while it appreciates when the RBI sells more foreign money. Foreign investments will total around $83 billion in 2021-22. The fiscal year 2022-23 will comprise more than $100 billion in assets. It might signal that the rupee's value would continue to fall.

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 graph below shows how erratic FDI equity inflows have been. While the inflow rose from March to April, it fell to $3978 million in June 2022. Unless and until the Indian economy stabilizes, FDI inflows are expected to slow. In 2023 or 2024, the Indian economy and currency will gain resilience and accelerate.

Various variables influence the value of the Indian rupee and the Indian economy. Because most of them are interconnected, it is difficult to investigate and assess each component to determine the core cause of such poor performance. On the other hand, the Indian government and the Reserve Bank of India are working hard to rebuild the Indian economy. We must work together to ensure that the currency and economy grow and stay stable by 2023.