This And That News Service
NEW DELHI, March 7 (AI Assisted) - Crude oil prices and import levels are linked to the value of the Indian rupee, with the currency weakening when petroleum prices spike, says a study The research paper based on a historical study assumes significance after benchmark Brent crude price surged 8.5% on Friday in the backdrop of the Israel/US-Iran war that potentially chokes supplies on a large scale
Researchers at Kristu Jayanti College have developed a regression model showing the primary drivers of Indian rupee volatility against the U.S. dollar from 2000 to 2020, offering a tool to forecast future currency values.
The study, titled "Indian Rupee: Is It Unpredictable? A Regression Model to Predict the Value of the Indian Rupee," identifies crude oil and imports as having the most significant statistical impact among factors like foreign direct investment (FDI), foreign reserves, and inflation rates.
A multiple regression analysis revealed so-called p-values involving variables that confirmed their predictive power, while others like foreign reserves showed no significant effect.
The refined model uses the formula: INR value = 50.35 - 0.31 × (crude oil price) + 0.06 × (imports), derived from historical data spanning two decades.
For instance, rising crude oil from $30.38 per barrel in 2000 to peaks near $100 in 2008 correlated with rupee depreciation from around 45 to over 60 per dollar.
India's forex reserves grew robustly to $577 billion by 2020, yet failed to stabilize the rupee amid high oil import bills, which hit $725 billion in 2021.
RBI interventions, such as releasing dollars and curbing non-essential imports, have aimed to counter depreciation pressures from events like the 2008 crisis and COVID-19.
The paper notes the rupee's breach below 80 per dollar in July (year unspecified), linked to surging oil demand and global dollar strength.
Inflation fluctuated wildly, peaking at nearly 12% in 2010, exacerbating pressures on India's import-dependent economy, ranked third globally by nominal GDP.
Researchers Bijin Philip, Kaushal Bajaj, and Wanshika Pareek urge promoting rupee internationalization amid shifting global dynamics.
