Indian Rupee (INR) to US Dollar (USD): Exchange rate and its impact

1.Overview of Historical Trends

At the time of India's independence in 1947, the Indian Rupee was pegged to the Pound Sterling at Rs. 13.33 per Pound Sterling and Rs. 4.76 per US Dollar In 1966, the Indian Rupee depreciated sharply from Rs. 4.76 per US Dollar to Rs. 7.5 per US Dollar. In recent years, the US dollar to Indian rupee exchange rate has shown an upward trend in 2024, indicating that the US dollar has appreciated in value relative to the Indian rupee. in August 2024, the exchange rate was around Rs. 83.90 and has stabilized at this level. From July 26, 2024 to January 22, 2025, the USD-INR exchange rate increased by 3.26%. The exchange rate reached Rs. 86.651 on January 13, 2025, while on September 20, 2024 it had touched a low of Rs. 83.487

 

Some financial institutions predict that the rupee will continue to weaken against the US dollar in early 2025, with Nuvama predicting a fall to Rs 86 by March 2025 and Kotak Securities suggesting that the exchange rate could fall below this level.

In the long term, Standard Chartered economists forecast that the rupee-dollar exchange rate may remain around Rs 85.50 by December 2025.

 

 

1.Impact on India's exports 

●Depreciation of the Rupee: When the Indian Rupee (INR) loses value against the US Dollar (USD), it makes India’s exports cheaper and more attractive in the global market. 
●Rupee appreciation: On the flip side, when the rupee gains strength, it drives up prices for Indian exports, making them less appealing to buyers overseas. This could lead to a drop in export sales.

 

● Rupee depreciation : When the rupee depreciates, the prices of imported goods increase relatively, leading to an increase in the cost of imports to India. In particular, industries that depend on imported raw materials and components, such as manufacturing and energy, will face higher production costs.
● Rupee Appreciation: Rupee appreciation, on the other hand, brings down the prices of imported goods and reduces the cost of imports, which facilitates more efficient production and operations for Indian firms, especially those that depend on imported raw materials.

A weaker rupee is good for exporters. They can convert their dollar earnings into more rupees. This increases their income and boosts their profits. For exporters, a weaker rupee increases the cost of their imports. This could squeeze profit margins and affect their competitiveness in the market.

 

Exchange rate fluctuations may affect investor confidence in the Indian economy. People will take action according to their expectations. If the market expects a inr depreciation, foreign investors may reduce their investments in India. It will lead to capital outflows. Frequent exchange rate fluctuations causes panic in the market. It also affects consumer and business confidence.

 

A weaker rupee is likely to push up India's inflation rate. The incease of prices for imported goods may influence domestic prices as a result. A stronger rupee is likely to have some dampening effect on inflation and reduce upward pressure on domestic prices.

 

Exchange rate changes have complex and far-reaching implications for cross-border trade between India and the United States. Exchange rate fluctuations not only affect the trade balance, corporate profits and market confidence between the two countries, but may also change the structure and flow of international trade. Firms and policymakers need to pay close attention to exchange rate changes and take appropriate countermeasures to address the challenges and opportunities arising from exchange rate volatility.

 

XTransfer is a one-stop financial and risk management service provider committed to making cross-border payment seamless and cost-effective for SMEs. We connect trusted financial institutions with SMEs around the world through technology, allowing SMEs to enjoy the same level of cross-border financial services as large multinational corporations.