Stabilisation Fund will increase fiscal deficit

The Centre's fiscal deficit will widen to the extent of the interest payments made on the bonds and bills issued from the Reserve Bank of India's (RBI) proposed Market Stabilisation Fund (MSF), according to RBI deputy governor Rakesh Mohan.

The RBI has given the market participants a month's time to give feed back on the MSF and Liquidity Adjustment Fund reports.

Implementation of recommendations of these reports will depend on the changes that will be required to be made to the existing framework pertaining to injection/ absorption of liquidity.

"The bills/ bonds that will be issued from the Market Stabilisation Fund will be akin to government securities except that the proceeds will not be available to the government. Both fixed and floating rate securities will be issued from the MSF and they will be of varying maturities," explained Mohan at a Fimmda meeting here today.

Securities issued on account of MSF, according to RBI executive director Usha Thorat, will be used for sterlising the forex capital flows.

Currently, the RBI uses the open market operation route to absorb excess liquidity in the market.