GyanGramWith reference to the Indian economy, consider the following statements: 1. If the inflation is too high, Res…
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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 below is/are correct?
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• Correct Answer: B
• RBI sells dollars to support a depreciating rupee.
• Lower US/EU rates increase capital inflows; RBI buys dollars to prevent excessive rupee appreciation.
• Buying securities during high inflation would inject liquidity and worsen inflation.
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