Why is the USD to INR Exchange Rate Down today on 31st March 2023 (2nd half of March 2023)? (2024)

Key points:

• The rupee is rising against the US dollar.
• 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.

Many economists believe that the economy will grow differently after 2023. Even though the global economy is weak, the US economy is improving. India's GDP increased by 13.5% in the fourth quarter, but the rupee's value remained unchanged. Experts agree that India's economy should grow only once every year rather than every three months. Working with other government agencies, the Reserve Bank of India (RBI) has improved the Indian economy. The government's decision to raise interest rates and limit trade has aided the currency and the economy.

At the moment, one US dollar is worth 82.10 Indian rupees. Prices were more stable in the second half of January than in the first half of the month. It demonstrates how far the rupee has progressed and how it could become well-known worldwide. On March 16, 2023, one rupee reached an all-time high of 82.99. On March 23, 2023, one rupee was worth an all-time low of 82.05. Recent changes in the value of the Indian rupee make us concerned about the Indian economy's and currency's long-term health. The average daily change over the last two weeks has been 0.07 points. India's central bank is the Reserve Bank of India (RBI). It collaborates with the government to keep the rupee stable. Keep in mind that things may remain the same for a while. In response to inflation, the Federal Reserve of the United States and many other central banks worldwide have reduced interest rates.

Several parts must work well for the currency to be solid and stable. They are:

1. Crude Oil
2. Gold imports
4. Inflation rates
5. Interest rates
6. Foreign and Domestic Investment

1. Crude Oil

Over 80% of India's crude oil needs are met by countries such as the United Arab Emirates (UAE), Russia, and Saudi Arabia. However, only about 10% of Indian trade passes through its ports. Gabon, Colombia, and Canada have begun shipping crude oil to India. For a long time, Nigeria and Iraq have been sending oil to India. Russia and Ukraine are still embroiled in a trade war, a global flu epidemic, and an oil crisis. All of these factors make doing business more difficult. Crude oil now costs $120 per barrel, a new high. Oil prices increased from $70 to $80 per barrel. India will have paid Brazil $722.54 million for oil by the end of the second quarter of 2022-2023. More than 70% of the crude oil used in the United States is imported.

The table and graph below show that prices have recently fallen. A barrel of oil increased by $19 between March 31 ($73.93) and March 20 ($64.12), 2023. Since the beginning of the month, the price has risen. Crude oil will now be essential to our economy and way of life. Work productivity may fall, prices may rise, and the Indian rupee's value may fall.

Crude Oil Prices from 16-03-2023 to 31-03-2023

2. Gold imports

Because gold is commonly used to make jewelry in India, it has many different meanings. People in 2022 did not save enough gold before the pandemic, causing panic. The Indian economy is suffering due to rising prices and increased gold imports. As a result, the government increased the already high 10.75% tax on gold imports by 15%. Even though tariffs have been raised, people continue to buy gold because the low prices compensate for the tax increase.

Gold prices have risen, as shown in the table and graph below. Gold is currently more expensive than in the final two weeks of January when the average price was $1966.39. From March 16 to March 20, 2023, gold will cost between $1909.90 and $2003.90. When gold from other countries enters the country, inflation follows quickly. The Federal Reserve should limit how much gold governments can purchase to prevent inflation from spiraling out of control.

Gold Prices from 16-03-2023 to 31-03-2023

3. GDP & Import/Export

The effects of the trade deficit on GDP can be seen in various ways, depending on multiple factors. How much a country buys and sells can affect the value of its currency and the health of its economy. When there are more imports than exports, the value of a currency falls, and when there are more exports than imports, the currency's value rises. Those who hold a depreciating currency face difficulties. GDP will fall as a result of this.

The graph below illustrates how difficult it is to forecast the trade deficit. It was fascinating to see how the share of Indian imports increased from March to July. Things are improving now, though. For the first time that year, the trade balance was positive in October and December 2022. Because of this surplus, India's trade deficit with the rest of the world increased by $8.7 million. There has always been a significant distinction between what is exported and what is imported. Even if things don't go as planned, September's positive delta is cause for optimism.

India’s Import/Export from May 2022 to Jan 2023

India’s GDP from Jul-2021 to Jan- 2023

A country's currency must be devalued when it has a trade deficit. It hurts how quickly and easily mundane tasks can be completed. Despite the currency's depreciation, the GDP increased from 5.4% in February 2022 to 13.5% in July 2022. However, it fell to 4.4% in January 2023. India's economic growth rate has been nothing short of phenomenal. The Indian government worked tirelessly to make the plan a reality. The RBI anticipates that growth will slow by 2023. It can teach you a lot about the Indian economy and its future. The currency's value will rise if this trend continues for three calendar quarters.

4. Inflation rates

If GDP falls and inflation rises, the value of a currency may rise or fall. In July, the annual inflation rate was 6.71 percent, the lowest since January 2022. It was less than 7.01 percent in June. In January of that year, the rate was 6.1%, but in January of the following year, it was 6.52%. Because the economy has grown so much, this can only happen now and then. Because these factors are interconnected, pinpointing a single cause for the difference is often difficult.

Inflation Rates in India from Jan 2021 to Jan 2022

Inflation Rates in the US from Feb 2022 to Feb 2023

Inflation has been high in the United States and India in recent years. In May 2022, inflation in the United States reached a new high of 9.1%. The Federal Reserve raised the repo rate by 75 basis points to prevent price increases. In February 2023, inflation was 6.0%, the lowest level in three years. When compared to the Indian rupee, the United States performed better.

5. Interest rates

The Reserve Bank of India raised the interest rate by 50 basis points in July 2022. It was done to reduce the cost of goods. The interest rate increased from 4.4% to 4.9%. If the repo rate rises, banks will charge higher interest rates on deposits and lend at higher rates to cover the cost. The majority of Indians believe that raising interest rates would benefit the economy. Because of the coronavirus pandemic, 4% of the population died at the fastest rate ever in 2020. The repo rate rose from 5.24 percent to 5.25 percent in August 2022, resulting in a 0.1% increase in September. The interest rate will be reduced to 6.50% in December 2022. Most people believe the Reserve Bank of India (RBI) will raise the repo rate again after the Union Budget is presented in February.

Interest Rates in India from Jun-2019 to Dec-2022

Because prices are rising, the Reserve Bank of India and the Federal Reserve of the United States have raised interest rates. It's insane that the repo rate increased by 75%. The interest rate is 4.83% as of March 2023. Inflation has also decreased as things have improved. Interest rates are likely to rise as long as the Federal Reserve believes it is necessary to do so to keep the US economy strong, which is a widely held belief. The main reason the Indian rupee is losing value against the US dollar is that India and the US are becoming increasingly culturally and linguistically distinct.

Interest Rates in the US from Oct-2021 to Mar-2023

6. Foreign and Domestic Investment

When interest rates rise, so does foreign direct investment (FDI) (foreign direct investment). This problem would have the same advantages and disadvantages as any other. The Reserve Bank of India (RBI) hopes to lower the value of the rupee by purchasing more foreign currency. The RBI's decision to sell more foreign currency, which increased the value of the rupee, will result in approximately $83 billion more foreign investment in 2022 than in 2021. The RBI's assets will be worth more than $100 billion by the end of the fiscal year 2022-2023. It could begin a long, slow decline in the rupee's value.

FDI in India from Jan-2022 to Dec-2022

The graph below depicts how companies that invest directly in other countries (FDI) tend to buy stocks in cycles. Sales increased between March and April 2022, but by December 2022, they had dropped to approximately $4,411,000.00. Foreign investment is likely to fall even further as India's economy improves. The Indian economy and the value of the rupee will improve significantly by 2023 or 2024.

According to India's Finance Minister, "The dollar value increased. It will not affect the value of a rupee." Saying the second sentence makes sense. Organizations are more effective at economic stabilization than the Reserve Bank of India (RBI) in India and the Federal Reserve System (Fed) in the United States. What happens in the rest of the world impacts the rupee's value and the Indian economy. It investigates a variety of factors, many of which are interconnected, to determine why performance is so poor. However, the government and the Reserve Bank of India are taking steps to restore order. Together, we can increase the likelihood that the economy will continue to grow and the currency will remain stable until 2023.