Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Q5. Discuss the objectives of RBI’s foreign exchange market intervention. How does it contribute to macroeconomic stability? (10 M)
Difficulty Level: Medium
Reference: IE
Why the question
Recent RBI measures to boost foreign currency inflows, including the FCNR(B) swap window (2026), have renewed focus on the role of foreign exchange market interventions in maintaining external sector and macroeconomic stability.
Key Demand of the question
The question requires discussing the objectives behind RBI’s foreign exchange market intervention and explaining how such interventions contribute to broader macroeconomic stability. Both parts should be addressed distinctly.
Structure of the Answer:
Introduction
Introduce the importance of foreign exchange market intervention in ensuring external sector resilience under a market-determined exchange rate regime.
Body
- Objectives of intervention: Mention the key purposes behind RBI’s intervention in the foreign exchange market.
- Contribution to macroeconomic stability: Explain how these interventions strengthen overall economic stability.
Conclusion
Conclude by highlighting the need for calibrated forex interventions along with strong macroeconomic fundamentals to sustain long-term external stability.
