[12-12-2025] UPSC PYQ 2022: With reference to the Indian economy, consider the following statements
If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
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?
Statement 1:
Buying G-secs injects liquidity, which increases money supply, worsening inflation.
To fight high inflation, RBI sells government securities to suck liquidity out.
Statement 2:
Selling dollars increases dollar supply → supports the rupee → slows depreciation.
Statement 3:
Lower interest rates abroad → capital inflows to emerging markets → rupee tends to appreciate.
To prevent excessive appreciation, RBI buys dollars to build reserves and maintain competitiveness.
Sayyed Furqani ,
Write your comment…
