Explanations – The most effective policy response to stabilize the Indian Rupee in the event of significant Foreign Portfolio Investor (FPI) outflows would be selling foreign currency reserves. This option is often used by central banks to stabilize a currency during periods of volatility or significant outflows. By selling foreign currency reserves, the central bank can buy back its own currency, thereby increasing demand for it and helping to stabilize its value. This approach has been used by the Reserve Bank of India (RBI) in the past to manage fluctuations in the rupee’s value.

Source: The Hindu