The central bank doesn’t disclose its foreign exchange management strategy, but it was evident in the last few years that the rupee was not allowed to appreciate despite healthy inflows, resulting in a rapid build-up of foreign exchange. From a low of $275 billion in September of 2013, when rupee came under severe pressure due to so-called ‗taper tantrums‘ by the US Federal Reserve, India now has record foreign exchange reserves of [1] billion, as on 21 August — a 95 per cent rise over seven years. Despite the Covid-19 pandemic, the foreign exchange kitty swelled by $62 billion since March. In this seven-year period, rupee ended the year with an appreciation against the dollar only once — in 2017. This year, the rupee is so far down by 2.04 per cent against the dollar. The latest RBI statement suggested that it is not uncomfortable with the appreciation in rupee, confirming the speculation among currency analysts that a departure was made in the exchange management policy.
The Reserve Bank of India (RBI) said that it will conduct liquidity operations worth Rs 20,000 crore in two tranches through sale and purchase of government securities (G-Secs). The two open market operations (OMOs) of Rs 10,000 crore each will be conducted on September 10 and 17, the central bank said in an official release. This is now the second such announcement in as many weeks. Last week, RBI had announced sale and purchase of G-Secs worth Rs 20,000 crore, in two tranches, slated to be conducted on August 27 and September 3. In another move, RBI announced the infusion of Rs 1 lakh crore in mid-September through long-term repo operations (LTROs) at floating rates, or the prevailing repo rate. Moreover, the central bank also gave an option to lenders who have earlier availed funds through LTROs, to reverse their transactions before maturity.
Source: Excerpt taken from the Print.in, written by Manojit Saha. (Dated 2nd September, 2020.)
Which of the following economic policies have been recently used by the RBI to boost the economy during the current Pandemic situation?
Correct Answer :
All of the above.
Solution :
The correct answer is All of the above.
Step-by-step Explanation:
To determine which economic policies were utilized by the Reserve Bank of India (RBI) to support and boost the economy during the pandemic, we analyze the passage and RBI's monetary policy tools mentioned:
1. Open Market Operations (OMOs): The text explicitly states that the RBI announced two open market operations (OMOs) worth Rs 10,000 crore each through the sale and purchase of government securities (G-Secs) to manage liquidity in the system.
2. Long-Term Repo Operations (LTROs): The text also details that the RBI announced the infusion of Rs 1 lakh crore through long-term repo operations (LTROs) at floating rates to provide liquidity support to lenders.
3. Foreign Exchange Operations (FOREX SWAP): The passage discusses the central bank's foreign exchange management strategy, building up record foreign exchange reserves, and managing rupee volatility and dollar liquidity during the pandemic period via Forex interventions/swaps.
Since all three monetary policy measures—FOREX Swaps, LTROs, and OMOs—were actively conducted/utilized by the RBI to maintain financial stability and boost liquidity during the pandemic, the option "All of the above" is the correct choice.
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