GS PrelimsEconomyExternal Sector2019

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

Correct Answer: Option D

Explanation

1. Stopping the slide of the Indian rupee requires measures that increase the demand for rupees or decrease its supply in the foreign exchange market, often achieved by increasing foreign currency inflows or decreasing outflows. 2. Option (A), Curbing imports of non-essential goods reduces demand for foreign currency, while promoting exports increases its supply. Both actions support the rupee. This is a likely measure. 3. Option (B), Encouraging Indian borrowers to issue rupee-denominated Masala Bonds attracts foreign investment (capital inflow), which increases demand for rupees when the foreign currency is converted. This supports the rupee. This is a likely measure. 4. Option (C), Easing conditions relating to external commercial borrowing (ECB) encourages Indian companies to borrow more foreign currency from abroad, leading to increased foreign currency inflows. This supports the rupee. This is a likely measure. 5. Option (D), Following an expansionary monetary policy typically involves lowering interest rates and increasing the money supply. Lower interest rates can reduce foreign capital inflows (making Indian assets less attractive) or even trigger outflows, decreasing demand for the rupee. Higher money supply can lead to inflation, further weakening the currency. This policy would likely exacerbate the rupee's slide, making it the *least likely* measure the Government/RBI would take to stop depreciation.

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