Trading relationships between the USD and the INR are central cross-border factors that affect international business, business investments, and economic policies. The record also enables business people to determine the price lag between their products, facilitates the budget-making process for travellers, and offers direction to investors. Every person who deals with the forex exchange business, like the currency exchange in Mohali, needs to pay attention to the changes in the exchange rates.
Historical Overview
Let us look back in history and understand how the exchange rate has evolved over time through difficulties and good times.
- Early Years (Pre-1991)
Up until 1991, India administered fixed foreign exchange at INR/USD trajectories. The government fixed the rate of exchange and thus managed the amount of flexibility as per the external market. Some of the events that affected the exchange rate include the oil crisis of the 1970s, which resulted in a balance-of-payment problem, and India’s war with Pakistan in 1971 putting pressure on the economy.
However, the overall measurement of INR stayed more or less constant within the elasticities of the government money balances. This stability threatened the black marketing of currencies for exchange, as the market demanded foreign exchange that the official rate had failed to meet.
- Liberalisation Era (1991 Onwards)
The structural changes initiated in 1991 defined a more liberalisation of the Indian economy. These reforms included a market-determined exchange rate that saw the value of INR relate to market forces of demand and supply. The first post-liberalization exchange rate hovered about 17-18 INR to the USD, almost a complete shift from the earlier one we labelled as fixed.
The main events during this period include the gradual realisation that the INR appreciation was due to economic expansion associated with increased FDI and the booming IT sector. The currency exchange market’s rapid growth was boosted by the enactment of the Foreign Exchange Management Act (FEMA), which came into force in 1999.
Major Trends In The USD To INR Exchange Rate
The trends in exchange rates have gone through ups and downs over the years depending on the economic growth, inflations, political events, etc.
- 2000s Surge
The figure clearly shows that during the early 2000s, there were many ups and downs in the exchange rate of USD and INR. Some of these reasons include the technology market, FDI, and favourable economic elements that contributed to the enhancement of INR. However, over the subsequent years up to 2007, the exchange rate was less than 39 INR per USD, implying that India’s economy has enhanced performance and is now a part of the global market system.
- Global Financial Crisis (2008)
The economic meltdown that hit the world in 2008, specifically on 15th October, could be referred to as the Global Financial Crisis. The crisis of 2008, in a significant way, affected the exchange rate of USD to INR. First of all, the pressure of devaluation at the beginning of the year made the INR depreciate heavily due to investors’ transfers to safer assets, mainly the USD. The exchange rate rose to around 50 INR for USD during the time of crisis. But, when the world economy started to regain its ground, more and more investor confidence started to return to the country, the utility of INR stabilised, and the value of the Indian rupee improved once again.
- Recent Years (2010-2023)
The exchange rate has had fluctuations between the years 2010 and 2023, from peak to low, marked out by the influence of external factors. Notable events included:
- Economic Growth Rates: Despite a number of factors resulting from global economic slowdowns, India’s GDP growth had otherwise continued to record significant progress.
- Inflation and Trade Deficits: Inflation differentials, expanding trade deficits and overall appreciation of the dollar led to changes in the exchange rate against the INR and hence USD.
- Geopolitical Events: Prospective conflicts in the Middle East and volatility in oil prices influenced India’s imports and, as a result, the exchange rate.
While writing this paper, the foreign exchange rate of USD/INR ranged between 75 and 80 INR per USD based on the current international economy and internal economic factors up to the year 2023.
Factors Influencing The Exchange Rate
- Economic Indicators
Several key economic indicators influence the USD to INR exchange rate:
- Inflation Rates: The flows are influenced by relatively higher inflation in India than in the USA, resulting in a depreciation of INR.
- GDP Growth: Higher economic growth boosts a currency because investors from other countries want to invest in the country.
- Interest Rates: A higher interest rate in India than in the US can attract more foreign investors, causing the INR to appreciate.
- Trade Balances: A trade deficit tends to reduce the value of a country’s local currency because, with a smaller amount of currency, a country buys more imported goods than it sells to other countries.
- Political And Global Factors
Government policies, geopolitical climates, and global economic factors complete the influential quartet. Fluctuations in the foreign policy of India and its neighboring countries and global disasters also affect investors and the fluctuation in the strength of the Indian Rupee. Moreover, changes in oil prices affect the exchange rate to a large extent since India has a huge reliance on imported oil.
Current Trends And Future Outlook
In late 2023, the value of USD against INR rose and fell due to various factors, such as recovery after the pandemic around the world and changed policies of the Federal Reserve of the United States. It was further stated that despite pressures arising from the global economies, structural changes, and India’s economic strength, it may actually take a gradual path towards appreciation in the long run.
Analyses made for the next few years for forecasts continue with the same context of FDI and the growth rate of GDP expected for the Indian economy. The exchange rate may hover in the range of 70-75 INR for every unit of USD. However, this is subject to change if a new geopolitical event arises around the globe or if any event threatens the economic growth of any country.
Conclusion
Understanding the evolution of the USD to INR exchange rate is crucial for making informed financial decisions, whether for business, travel, or investment. By recognising the historical context, current trends, and influencing factors, individuals and businesses can better navigate the complexities of currency exchange. Stay updated on these trends and contact the best forex exchange in Mohali to make wise financial choices in an ever-evolving economic landscape.