Question:
In India, which authority regulates and sterilises the money supply in the economy?
In India, which authority regulates and sterilises the money supply in the economy?
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Sterilisation = Operations by the central bank (RBI) to insulate domestic money supply against shocks from cross-border capital flows.
Updated On: Sep 7, 2026
- Commercial Banks.
- Reserve Bank of India.
- Central Government.
- Public.
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The Correct Option is B
Solution and Explanation
Concept:
Monetary policy, currency issuance, and foreign exchange stabilization are statutory functions entrusted to a nation's central bank.
In India, these monetary functions are performed by the Reserve Bank of India (RBI).
Step 1: Understanding Sterilisation and Money Supply Regulation:
- Regulation: The RBI controls high-powered money and overall domestic liquidity using quantitative tools (CRR, SLR, Repo Rate) and qualitative measures.
- Sterilisation: When large inflows of foreign exchange enter India, the RBI buys foreign currency to prevent excessive appreciation of the Indian Rupee. This injects equivalent domestic currency into the banking system.
To neutralize (sterilise) this inflationary surge in money supply, the RBI conducts Open Market Operations (OMO) by selling government securities, thereby absorbing the excess liquidity.
Step 2: Authority in Charge:
This operation of regulating and sterilising liquidity is conducted solely by the Reserve Bank of India.
Final Answer:
The Reserve Bank of India regulates and sterilises the money supply. Thus, option (B) is the correct answer.
Monetary policy, currency issuance, and foreign exchange stabilization are statutory functions entrusted to a nation's central bank.
In India, these monetary functions are performed by the Reserve Bank of India (RBI).
Step 1: Understanding Sterilisation and Money Supply Regulation:
- Regulation: The RBI controls high-powered money and overall domestic liquidity using quantitative tools (CRR, SLR, Repo Rate) and qualitative measures.
- Sterilisation: When large inflows of foreign exchange enter India, the RBI buys foreign currency to prevent excessive appreciation of the Indian Rupee. This injects equivalent domestic currency into the banking system.
To neutralize (sterilise) this inflationary surge in money supply, the RBI conducts Open Market Operations (OMO) by selling government securities, thereby absorbing the excess liquidity.
Step 2: Authority in Charge:
This operation of regulating and sterilising liquidity is conducted solely by the Reserve Bank of India.
Final Answer:
The Reserve Bank of India regulates and sterilises the money supply. Thus, option (B) is the correct answer.
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