Crude Oil Prices: An Asset Class Analysis on Monetary Policy, Currency Exchange Rate and Nifty 500 with Respect to the Indian Economy

Abstract

Crude oil is an essential commodity for an economy, hence its requirement has seen a rapid growth in India. To subdue inflation, and a sustainable and rapid economic growth, crude oil plays a crucial role. India has been positioned as the 4 th largest consumer of crude oil by importing 100 million tons of crude oil every year, which accounts for almost 37 percent of the total import. Crude is a price determinant among various other commodities as a rise or fall in its prices has a direct impact on prices of various commodities and society. An increase in oil price leads to an appreciation in the exchange rate in oil exporting countries and depreciation in oil importing countries. Reduction of one dollar leads to a three-fold effect in the economy and saves about 40 billion rupees. This study analyses the impact of crude oil prices on the Indian economy. In order to analyse the impact, the study uses variables like stock index, monetary policies and currency exchange rates, and we have employed statistical techniques such as Augmented Dickey Fuller , correlation, co-integration and regression. The study finally concludes that crude oil prices have a significant impact on exchange rate, inflation and interest rates.