A country operating under a fixed exchange rate system experiences a persistent balance of payments deficit, putting downward pressure on its currency. If the central bank is committed to maintaining the exchange rate peg without resorting to a formal devaluation, which of the following is most likely to occur?
An accumulation of foreign currency reserves as the central bank buys foreign assets to maintain the peg.
A contractionary monetary policy and a reduction in domestic aggregate demand.
An expansionary fiscal policy to stimulate domestic production and export industries.
A reduction in domestic interest rates to prevent speculative short-term capital inflows.