Market Stabilisation Scheme
Also called: MSS, MSS bonds · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT
Meaning
The Market Stabilisation Scheme (MSS) is a 2004 arrangement, set up by an MoU (a signed agreement) between the Government of India and the RBI. Under it, the government issues Treasury bills and dated securities to soak up surplus liquidity, meaning extra money in the banking system. The money raised is kept in a separate account and is not spent. The government's budget bears the interest cost. MSS helps the RBI sterilise, meaning cancel out, the money created when it buys large forex inflows.
Example
Demonetisation in November 2016 flooded banks with deposits. To absorb this money, the MSS ceiling was raised to ₹6 lakh crore. Banks bought MSS bills, and the cash they paid was locked away instead of being lent out.
Don't confuse with
- Ordinary government borrowing: normal borrowing pays for government spending. MSS proceeds are not spent, because the aim is only to take money out of circulation.
Related concepts
- Long-Term Repo Operations
- Forex swap auction
- Sterilisation
- Incremental Cash Reserve Ratio
- Demonetisation