UPSC PRELIMS · ECONOMICS · MONETARY POLICY AND FOREIGN EXCHANGE INTERVENTION
With reference to the Indian economy, consider the following statements: 1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities. 2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. 3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars. Which of the statements given above are correct?
Take a breath. Choose one. Press A–D on your keyboard if you like.
EXPLANATION
To support the rupee during depreciation the RBI can sell dollars. Buying government securities would generally add liquidity rather than directly counter high inflation.
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