Monetary Policy#3: Open Market Operations (OMO) & Market Stabilization Scheme (MSS)

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- Since RBI is the public debt manager, it has to purchase unsold government securities. And later on, using these securities, RBI can conduct open market operations to increase or decrease money supply, and thus, combat against inflation or deflation.
- But, suppose RBI runs out of government securities then how can it absorb liquidity? Such scenario happened in 2003, and subsequently, an MoU was signed between RBI and the government of India, wherein RBI can issues market stabilization scheme (MSS) securities to job excess liquidity from the system, even when government is not interested in borrowing.
Post-demonetization, the ceiling for MSS-securities was increased from Rs.30,000 crores to Rs. 6 lakh crores, and they were utilized to absorb the excess NDTL after the deadline for incremental CRR had expired.

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