If the Reserve Bank of India wants to block / hinder the Capital Outflows and contain the currency depreciation, which among the following would be the most possible action?

Question

The correct answer is "Increase Interest Rates." Increasing interest rates can attract foreign capital by offering higher returns on investments, which helps stabilize the currency and reduce capital outflows. Historically, central banks, including the Reserve Bank of India, have used this tool to combat inflation and currency depreciation. For instance, in 2013, India raised interest rates to curb the rupee's decline during the "taper tantrum" when the U.S. Federal Reserve signaled a reduction in bond purchases.

GKToday Admin · Accepted Answer

Increase Interest Rates The correct answer is "Increase Interest Rates." Increasing interest rates can attract foreign capital by offering higher returns on investments, which helps stabilize the currency and reduce capital outflows. Historically, central banks, including the Reserve Bank of India, have used this tool to combat inflation and currency depreciation. For instance, in 2013, India raised interest rates to curb the rupee's decline during the "taper tantrum" when the U.S. Federal Reserve signaled a reduction in bond purchases.

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