With reference to the Indian economy, consider the following statements : 1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities. 2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. 3. 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?

1. Statement 1: If inflation is too high, the Reserve Bank of India (RBI) aims to reduce the money supply in the economy. Buying government securities (Open Market Operations - OMO purchase) injects liquidity into the system, which would likely worsen inflation. To combat high inflation, RBI is likely to *sell* government securities. Thus, statement 1 is incorrect. 2. Statement 2: If the rupee is rapidly depreciating, it means the demand for dollars is high relative to the rupee. To stabilize the rupee, the RBI can intervene in the foreign exchange market by selling dollars from its reserves. This increases the supply of dollars and absorbs rupees, thus helping to curb the depreciation. Thus, statement 2 is correct. 3. Statement 3: If interest rates in the USA or European Union were to fall, investments in India might become relatively more attractive, leading to increased capital inflows (foreign investors bringing dollars to invest in India). This inflow would increase the supply of dollars and put upward pressure on the rupee (appreciation). To prevent excessive appreciation and maintain export competitiveness, the RBI might intervene by buying dollars, thereby absorbing the excess supply and injecting rupees. Thus, statement 3 is correct. 4. Since statements 2 and 3 are correct, the correct option is (B).