The Reserve Bank of India (RBI) today said the ceiling for issuing bonds under the Market Stabilisation Scheme (MSS) for 2009-10 has been set at Rs 50,000 crore, so that it can mop up excess liquidity in the system.
Bond dealers said this was an enabling provision and did not mean that the central bank would immediately begin sucking out excess liquidity.
At present, excess liquidity is a hardly a worry for the apex bank because the government has lined up a huge borrowing plan for the second quarter of 2009-10.
In fact, RBI has been unwinding bonds in MSS portfolio since the second half of 2008-09 to infuse liquidity into the banking system as the government’s market borrowings rose sharply to fund the economic stimulus package.
The ceiling has been set in accordance with the provisions of the memorandum of understanding (MoU) on MSS. The ceiling and the threshold have been set in consultation with the government, RBI said in a statement.
The threshold for a review of the ceiling has been set at Rs 35,000 crore of MSS outstanding.
The current MSS outstanding balance (face value) is Rs 23,273 crore. Redemptions to the tune of Rs 15,536 crore are due during the remaining part of the current financial year.
RBI may have to resort to MSS bond issuance only in the second half of the current financial year. Subdued credit offtake and banks saddled with huge resources and rising inflation may drive the central bank to suck out excess liquidity to contain inflationary expectations.
