Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?
Answer & explanation
Answer: (d) Following an expansionary monetary policy
An expansionary monetary policy lowers interest rates, which makes holding rupee assets less attractive and tends to push the rupee down further. The other three steps reduce the demand for dollars or bring foreign money in, so they support the rupee.
- ✓ (d) NCERT explains that a rise in interest rates at home often leads to an appreciation of the domestic currency, so a policy of lower rates does the opposite and would not stop the slide.
- ✗ (a) Fewer imports and more exports narrow the trade gap. In September 2018 the Government raised customs duty on 19 non-essential items to narrow the current account deficit.
- ✗ (b) Masala bonds are rupee bonds sold abroad, so they bring foreign money in. In September 2018 the Government exempted from tax the interest paid on masala bonds issued between 17 September 2018 and 31 March 2019, to raise foreign exchange inflows.
- ✗ (c) Easier external commercial borrowing lets Indian firms raise foreign money more freely. The RBI liberalised the ECB and rupee-bond framework in January 2019.
Remember · To stop the rupee sliding, the authorities reduce dollar demand and attract foreign inflows (curb imports, ease ECB, masala bonds); cutting interest rates makes it worse.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 6 “Thus, a rise in the interest rates at home often leads to an appreciation of the domestic currency.”
- PIB (Ministry of Finance), Tariff measures taken to curb the imports of non-essential items, 26 Sep 2018 ↗ “The Central Government has taken tariff measures, by way of increase in the basic customs duty, to curb import of certain imported items. These changes aim at narrowing the current account deficit (CAD).”
- PIB (Ministry of Finance), Exemption to Interest Income on Specified Off-shore Rupee Denominated Bonds, 17 Sep 2018 ↗ “In this background, Low Cost Foreign Borrowings through Off-shore Rupee Denominated Bond have been further incentivised to increase the foreign exchange inflow.”
- RBI circular RBI/2018-19/109, External Commercial Borrowings, Trade Credits and Structured Obligations ↗ “it has been decided, in consultation with the Government of India, to rationalise the extant framework for ECB and Rupee Denominated Bonds in light of the experience gained to improve the ease of doing business.”
Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·