Investigating the Determinants of Indian Rupee Exchange Rate: An Empirical Analysis of Influential Factors and Their Impact Level: Part 1

Essential component of every economy, particularly in the business world where it affects investment and profit estimation, is the currency exchange rate. This study uses a variety of macroeconomic variables over a long time frame to examine the causes and consequences of exchange rate variations in India. With the exchange rate acting as the dependent variable and a number of macroeconomic variables acting as independent variables, such as the real interest rate, lending interest rate, tax revenue, gold prices, GDP(Gross Domestic Product) at current prices, GDP at constant prices, and total reserves, we examine annual data from 1950 to 2022 using an empirical methodology. We combine linear and multiple linear regression with correlation analysis to determine the effect of these variables on the Indian exchange rate. Our research identifies the causes of exchange rate changes in India as well as their magnitudes. Policymakers, investors, and scholars who are interested in understanding the Indian economy and its exchange rate fluctuations would find the study’s findings to be helpful. The outcome of the study has significant policy-making effects in India. Policymakers may put policies into place to encourage economic development, keep sufficient reserves, and optimize tax income by being conscious of the interactions between these factors. These insights may also be applied when making monetary policy decisions, such as determining an appropriate interest rate to keep prices and growth in the economy in check.