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RBI Governor Sanjay Malhotra says inflation control remains the foremost priority; FCNR(B) deposits and foreign investment in government securities have strengthened India’s external position
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Mains Practice Question
Examine the implications of RBI's identification of the rupee as undervalued, particularly in relation to foreign investment inflows and India's external position.
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The RBI has identified the rupee as what?
The RBI has identified the rupee as undervalued, which means its value is lower than what it should be compared to other currencies.
Consider the following statements regarding RBI's assessment of the rupee: 1. The RBI has identified the rupee as overvalued. 2. The RBI Governor Sanjay Malhotra prioritizes inflation control, which may have led to the identification of the rupee as undervalued. 3. FCNR(B) inflows are directly linked to the RBI's assessment of the rupee. How many of the above statements are correct?
Statement 1 is incorrect because the RBI has identified the rupee as undervalued (fact 2), not overvalued. Statement 2 is correct because the RBI Governor prioritizes inflation control (fact 1). Statement 3 is incorrect because FCNR(B) inflows crossing $32 billion is a separate fact (fact 3) and does not directly link to the RBI's assessment of the rupee.
Consider the following two statements: Statement-I: The RBI Governor has identified the rupee as undervalued. Statement-II: FCNR(B) inflows have crossed $32 billion, which is a sign of strong foreign investment in Indian economy. Which one of the following is correct in respect of the above statements?
Statement 1 is correct because fact 2 states that the RBI has identified the rupee as undervalued. Statement 2 is correct, but it does not explain why the rupee is undervalued.