MACROECONOMIC INFLUENCES ON THE INDIAN RUPEE: AN ANALYSIS OF EXCHANGE RATE DYNAMICS FROM 2001 TO 2018

India’s economy experienced significant transformations between 2001 and 2018, marked by robust GDP growth, fluctuating exchange rates, and varying macroeconomic conditions. This study examines the interactions among key macroeconomic variables, including the exchange rate (ER), real GDP, lending rates, the Index of Industrial Production (IIP), the Consumer Price Index (CPI), and foreign exchange reserves (FER). Utilizing data from this period, the study explores how these variables influence the exchange rate and overall economic stability. The findings highlight the significant impact of inflation and foreign exchange reserves on the exchange rate. A 1% increase in CPI is associated with a 1.027% depreciation of the INR, while a 1% rise in FER leads to a 0.318% appreciation of the currency. These results underscore the importance of effective inflation control measures and strategic management of foreign reserves in maintaining currency stability. The study also discusses the complex interplay between lending rates, industrial production, and economic growth, providing insights for policymakers to ensure sustainable economic development.