Stabilisation bond size capped at Rs 60,000 crore

The Government of India has capped the amount to be issued under market stabilisation scheme (MSS) at Rs 60,000 crore for the time being.

A release issued by the Reserve Bank of India ( RBI) said: "The total outstanding obligation of the government by way of bills/securities issued under the MSS from time to time would not exceed Rs 60,000 crore for the present."

In this regard, the RBI has proposed to the government to authorise the issuance of such issuances under MSS up to a specified ceiling to be mutually agreed upon between the government and RBI under a memorandum of understanding (MoU).

The release added that the bills will be issued by way of auctions to be held by the RBI and it will decide and notify the amount, tenure and timing of issuance of such treasury bills and dated securities from time to time.

The bills and securities issued under MSS would be matched by an equivalent cash balances held by the government with the RBI so that there will be an marginal impact on revenue and fiscal deficit of the government to the extent interest payment would be done on the bills/bonds under MSS.

The total absorption of liquidity from the system by the RBI will continue to be in line with monetary policy stance from time to time and accordingly the liquidity absorption will get apportioned among the instruments of liquidity adjustment facility, MSS and normal open market operations.

As mentioned in the RBI's report of the internal group on liquidity adjustment facility , the intention of introducing MSS is essentially to differentiate the liquidity absorption of a more enduring nature by way of sterlisation from day to day normal liquidity management operations.