Optimum Level of Currency Reserves: Investigation and Forecasting of Indian Rupee Using ARIMA Model

This paper investigates the reason behind the Rupee's depreciation over the period. In the late 1990s, India faced a serious economic crisis where India could barely finance three weeks' worth of imports, and the cause for this crisis was nothing but the currency devaluation and the current account debt. Concerning this major crisis bank sluggishly awakened to realize that it had to increase its currency reserves. Today India is one of the top ten countries in the world, having the largest foreign currency reserves as assets in its treasury. It is poignant that Indian Rupee remains continuously devalued from 1991 onwards. However, compared to its counterpart countries like China (CHF) and Russia (RUB), the Indian Rupee is still considered the most vulnerable currency. At this juncture, it is essential to determine the major causes of the Indian Rupee devaluation. There is a need to find various measures to increase the currency reserves to arrest currency devaluation. In this context, the article discusses forecasting the future movement of the Indian Rupee in terms of factors assisting in improving the currency reserves.