MSS limit may be raised over Rs 30,000 cr to manage liquidity

Government is considering a proposal to raise Market Stabilisation Scheme (MSS) ceiling beyond the existing Rs 30,000 crore to mop up extra liquidity from the system in view of demonetisation.
"RBI has already given a proposal for increasing the MSS limit and it is under the consideration of the government," Economic Affairs Secretary Shaktikanta Das said here.
However, he did not specify the quantum of increase being considered.
The increase in the MSS limit may come up in Demand for Grants in the ongoing Winter Session of Parliament.
MSS bonds are issued with the objective of providing RBI with a stock of securities with which it can intervene in the market for managing liquidity. These securities are not issued to meet government's expenditure.

On RBI's decision to raise CRR, Das said it became necessary due to increase in liquidity in the system as large sums of money in the form of scrapped Rs 500/1,000 notes are being deposited by the public in banks.

RBI on Saturday asked lenders to temporarily maintain an incremental cash reserve ratio (CRR) of 100 per cent to absorb excess liquidity from the system. CRR is the portion of the deposits banks are required to park with RBI. The actual current rate of CRR is 4 per cent.
Yesterday, RBI Governor Urjit Patel had said RBI has announced an incremental CRR (Cash Reserve Ratio) of 100 per cent "because of the large increase in deposits of banks on account of the return of Rs 1,000 and Rs 500 notes" and the decision will be reviewed immediately once the government issues adequate quantum of MSS bonds which they have promised to do.

"While RBI has a significant stock of government securities available, we felt that if the increase in deposits continues we may fall short, hence the decision. Once the government issues adequate quantum of MSS bonds, which they have promised to, we will immediately review the incremental CRR," he had said.