3/23/2017 MarketStabilizationScheme(MSS)Arthapedia

MarketStabilizationScheme(MSS)
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ThisschemecameintoexistencefollowingaMoUbetweentheReserveBankofIndia(RBI)andthe
GovernmentofIndia(GoI)withtheprimaryaimofaidingthesterilizationoperationsoftheRBI.

Historically,theRBIhadbeensterilizingtheeffectsofsignificantcapitalinflowsondomesticliquidityby
offloadingpartsofthestockofGovernmentSecuritiesheldbyit.Itispertinenttorecall,inthiscontext,thatthe
assetssideoftheRBIsBalanceSheet(July1toJune30)includesForeignExchangeReservesand
GovernmentSecuritieswhileliabilitiesareprimarilyintheformofHighPoweredMoney(consistingof
CurrencywiththepublicandReservesheldintheRBIbytheBankingSystem).Thus,anyriseinForeign
ExchangeReservesresultingfromtheinterventionoftheRBIintheForeignExchangeMarkets(withthe
intention,say,tomaintaintheexchangerateonthefaceofhugecapitalinflows)entailsacorrespondingrisein
HighPoweredMoney.TheMoneySupplyintheeconomyislinkedtoHighPoweredMoneyviathemoney
multiplier.Therefore,onthefaceoflargecapitalinflows,tokeeptheliabilitiessideconstantsoastonotraise
theSupplyofMoney,correspondingreductioninthestockofGovernmentSecuritiesbytheRBIisnecessary.

TheMSSwasdevisedsincecontinuousresorttosterilizationbytheRBIdepleteditslimitedstockof
GovernmentSecuritiesandimpairedthescopeforsimilarinterventionsinthefuture.Underthisscheme,the
GoIborrowsfromtheRBI(suchborrowingbeingadditionaltoitsnormalborrowingrequirements)andissues
TreasuryBills/DatedSecuritiesthatareutilizedforabsorbingexcessliquidityfromthemarket.Therefore,the
MSSconstitutesanarrangementaidinginliquidityabsorption,inkeepingwiththeoverallmonetarypolicy
stanceoftheRBI,alongsidetoolsliketheLiquidityAdjustmentFacility(LAF)andOpenMarketOperations
(OMO).

ThesecuritiesissuedunderMSS,termedasMarketStabilizationScheme(MSS)Securities/Bonds,areissued
bywayofauctionsconductedbytheRBIandaredoneaccordingtoaspecifiedceilingmutuallyagreedupon
bytheGoIandtheRBI.TheypossessalltheattributesofexistingTreasuryBills/DatedSecuritiesandare
includedasapartofthecountrysinternalCentralGovernmentdebt.

TheamountraisedundertheMSSdoesnotgetcreditedtotheGovernmentAccountbutismaintainedina
separatecashaccountwiththeRBIandareusedonlyforthepurposeofredemption/buybackofTreasury
Bills/DatedSecuritiesissuedunderthescheme.

However,followingtheglobalfinancialcrisisof2008,thatnecessitatedfiscalstimulusmeasures,an
amendmenttotheoriginalMoUbetweentheRBIandtheGoIinFebruary2009allowedtheGovernmentto
convertaportionoftheMSSfundsintonormalgovernmentborrowingforfinancingitsstimulusexpenditure
requirements.

TreasuryBills/SecuritiesissuedunderMSSarematchedbyequivalentcashbalancesthatareheldbythe
GovernmentwiththeRBI.SuchpaymentsarenotmadefromtheMSSaccountjustasreceiptsduetopremium
oraccruedinterestontheseSecuritiesarenotcreditedtoit.

AsandwhenMSSsecuritiesareissuedbytheRBIaswellastheannualceiling,whendecided,isnotified
throughapressrelease.Forthefiscalyear201011theannualceilingforsuchsecuritiesoutstandingstandat
Rs.50,000crore,withareviewduewhentheoutstandingreachesthethresholdofRs.35,000crore.

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AlsoSee
StatutoryLiquidityRatio(SLR)(http://www.arthapedia.in/index.php?title=Statutory_Liquidity_Ratio)
cashreserveratio(CRR)(http://www.arthapedia.in/index.php?title=Cash_Reserve_Ratio_(CRR))
LiquidityAdjustmentFacility(LAF)(http://www.arthapedia.in/index.php?
title=Liquidity_Adjustment_Facility_(LAF))
BaseRate(http://arthapedia.in/index.php?title=Base_Rate)
MarginalStandingFacility(MSF)(http://www.arthapedia.in/index.php?
title=Marginal_Standing_Facility)
PolicyRate

References
1.http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=9886
2.http://www.rbi.org.in/scripts/PublicationReportDetails.aspx?
TYPE=PERIOD&PARAM1=11/12/2003&PARAM2=13/12/2003

Contributedby
RangeetGhosh,IES(2008)(http://www.ies.gov.in/myaccountprofileview.php?memid=359)
Emailrangeetg.ies@gmail.com(mailto:rangeetg.ies@gmail.com)

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Thispagewasfirstcreatedon23August2011,at03:50andlastmodifiedon17April2016,at17:34.
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