QUESTION

Easy

Economy

Prelims 2019

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

Select an option to attempt

Explanation

Out of the listed measures, the one least likely used to stop the rupee's slide is D. Following an expansionary monetary policy

Option A is incorrect. Curbing non-essential imports and promoting exports: This reduces the demand for foreign currency and increases its supply through exports, potentially strengthening the rupee.

Option B is incorrect. Encouraging Masala Bonds: These are rupee-denominated bonds issued by Indian entities in foreign markets. They attract foreign investment without increasing external debt in dollars, potentially supporting the rupee.

Option C is incorrect. Easing external commercial borrowing (ECB) conditions: This allows companies to borrow foreign currency more easily, potentially increasing the supply of foreign currency in the short term. However, it can also increase external debt in the long run.

Option D is correct. Why is expansionary monetary policy less likely? An expansionary policy typically involves lowering interest rates. This can make borrowing cheaper and encourage spending, potentially leading to inflation. Inflation can further weaken the rupee if it's not matched by rising export earnings.

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