MSS limit raised to Rs 6 lakh crore to manage liquidity

INDORE, India - Dec. 3, 2016 - PRLog -- Market Stabilization Scheme(MSS) securities are issued with the aim of providing the Reserve bank of India with a stock of securities with which it can intervene in the market for managing liquidity. The government and the RBI today sharply raised the market stabilization scheme (MSS) to Rs 6 lakh crore from Rs 30,000 crore in order to mop up extra liquidity from the banking system in view of demonetization.

The RBI will operate within that limit as per requirement, not as if the entire quantum of MSS would be utilized overnight, and whatsoever liabilities come in this year we should be able to absorb it in the provisions of Budget for interest payment, which is there already in the Budget, said the Economic Affairs Secretary Shaktikanta Das.

Further, the RBI today auctioned the 28-day Cash Management Bills of Government of India worth Rs 20,000 crore. The announcement regarding the auction of Cash Management Bills was made within minutes of increase in MSS ceiling. Cash Management Bills will have the generic character of Treasury Bills, it added. After the withdrawal of the legal tender character of the high denomination notes with effect from November 9, the banking system has been a flow with liquidity arising out of the huge deposits from the public, the RBI said in a notification.

As per latest reports, deposits of Rs 10 lakh crore have come into the system, and more deposits are expected to flow in the coming days prior to the December-30 deadline.

The central bank had last week imposed an incremental cash reserve ratio (CRR) of 100 per cent as a temporary measure. In view of providing the central bank with a stock of securities, MSS bonds are issued with which it can intervene in the market for managing liquidity. These securities are not issued to meet government's expenditure. As part of liquidity management exercise, RBI last week asked lenders to maintain an incremental cash reserve ratio of 100, for the time being.

The hike in the ceiling for the MSS to Rs 6.00 lakh crore will supplement the excess interbank liquidity that can be absorbed by the RBI through overnight /term reverse repos by offering its stock of government securities in excess of Rs 7.00 lakh croers, as collateral, as per Karthik Srinivasan, Sr. Vice-President and head of financial sector ratings of ICRA Ltd.

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