After a long pause, Market Stabilisation Scheme is back…

I think the last time, government mopped up liquidity via MSS was Sep 2, 2008. That week, RBI notified issuance of  91 day T-Bills worth Rs 5000 cr out of which Rs 2000 cr was for MSS. There was also another issuance same day of 182 day Tbills as well worth Rs 2500 cr of which Rs 2000 cr was under MSS. The government also used to issue bonds for MSS but not sure when was the last time they were used.

After Sep 2 2008,  came Sep 16 2008 and all things reversed. Of course Sep 16 2008 was when Lehman happened changing things from a surplus liquidity to a deficit liquidity position. It also led to a serious rise in fiscal deficit with government using the bonds issued under MSS as part of its borrowings to meet fiscal deficit. Until then MSS bonds were parked seperately with RBI (under liabilities of RBI Balance sheet) and could not be used by government. They were just used for liquidity purposes but soon began to be used for deficit purposes as well.

Since then each year there is a MSS limit prescribed in the budget but is not used.

Now, with things again under surplus liquidity RBI/Government have announced usage of MSS scheme. There is a weekly calendar with one issuance per week of Rs 25000 cr which is huge given previously around Rs 3000-5000 crore were used as MSS. The government will issue T-bills and not bonds (which suck liquidity for a longer period).

The results for the first auction (17 Apr 2017) have already come up. The markets have sold the 329 day Tbill for Rs 94.56 at a yield of 6.38%. Just a few days ago on 12 Apr 2017, the markets bought 364 day Tbills from government at 94.16 at a yield of 6.21%.

Interesting times are back again.. Appreciating rupee, MSS bonds being used to absorb liquidity and so on…


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