BANKING AFFAIRS

Detailed explanation-1: -Below are some ways RBI can stop the rupee depreciation: Sell forex reserves: RBI can sell (it is already doing it) a part of its foreign forex reserves to control the falling rupee. In 2021, India’s foreign exchange reserves stood at $642 billion.

Detailed explanation-2: -The Reserve Bank of India, is the custodian of the country’s foreign exchange reserves and is vested with the responsibility of managing their investment.

Detailed explanation-3: -Intervention by the RBI in the foreign exchange market by way of purchase of dollars that increases forex reserves and reserve money, if not sterilised, can push down money market interest rates below the policy rate and lead to inflation.

Detailed explanation-4: -When there is excess supply of money, RBI sells government securities thereby taking away excess liquidity. Similarly, when economy needs more liquidity, RBI buys government securities and infuses more money supply into the economy.