Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?
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Answer: A. Sterilization means the RBI cancels out the effect of its foreign exchange operations on money supply. For example, when it buys dollars and releases rupees, it sells government securities through Open Market Operations to soak the extra rupees back. So OMOs are the sterilization tool.
Watch for: Debt management also involves government securities, but sterilization specifically uses OMOs (and tools like MSS) to offset forex inflows.
Why the other options are wrong
- B. Wrong because payment system oversight does not change money supply.
- C. Wrong because managing government debt and cash is a banker-to-government role, not sterilization.
- D. Wrong because regulating NBFCs is a supervisory role, not sterilization.
Source to check: RBI website, 'Market Stabilisation Scheme' and Open Market Operations FAQs; NCERT Class 12 Introductory Macroeconomics, Ch 3 Money and Banking
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.