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UPSC Prelims 2019 Paper-1 📅 02 Jun, 2019

Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?

A
Curbing imports of non-essential goods and promoting exports
B
Encouraging Indian borrowers to issue rupee denominated Masala Bonds
C
Easing conditions relating to external commercial borrowing
D
Following an expansionary monetary policy
Result Summary
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APEDIA

UPSC Prelims
2019 • 02 Jun, 2019 • Paper-1
Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?
Correct Answer
Following an expansionary monetary policy
Rupee Stabilization Measures: To systematically prevent the national currency from drastically depreciating, central authorities typically execute targeted stra......
Ref/Book : UPSC Prelims 2019
Ref. Subject Economy
Chapter -
Ref. Topic Macroeconomics
Pg. No -
💡 Analysis & Explanation
Rupee Stabilization Measures ▼
To systematically prevent the national currency from drastically depreciating, central authorities typically execute targeted strategies aimed either at aggressively increasing the inward flow of foreign dollars (via robust exports, issuing Masala Bonds, or relaxing ECB norms) or strictly decreasing the outward flow of dollars (by heavily restricting non-essential imports).
Impact of Expansionary Policy ▼
Implementing a broad expansionary monetary policy (such as dramatically cutting domestic interest rates) floods the local market with excess domestic liquidity, inherently lowering bond yields. This action usually drives yield-seeking foreign investors away, accelerating massive capital flight and severely worsening the currency's depreciation, making it entirely and dangerously counterproductive during an active currency crisis.
Conclusion ▼
Expanding the internal money supply directly contradicts and undermines the urgent goal of strengthening a sliding currency.
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