The RBI controls the Commercial Banks through:
1. The RBI decides the amount of money that the banks can keep with themselves.
2. RBI fixes the interest rates
3. Nature of lending to various sectors
4. It safeguards the interests of account holders 5. What do you understand by devaluation of rupee?
Devaluation of rupee means a deliberate downward adjustment in the official exchange rate of rupee relative to other currencies, Devaluation is different from depreciation which is a fall in the value of a currency in a floating exchange rate due to supply and demand side factors and not due to government decision.
consumers, discouraging imports. As is evident, this was done to reduce India’s Balance of Payments (BoP) deficit.
Under floating exchange rate system as followed in India at present, the RBI maintains the exchanges rate of rupee by buying or selling foreign currency, usually US Dollar. There were two important implications of devaluation of rupee.
First devaluation made India’s exports relatively less expensive for foreigners and increased their competitiveness and second, it made foreign products relatively more expensive for domestic consumers, discouraging imports. As is evident, this was done to reduce India’s Balance of Payments (BOP) deficit.
