Explanation:

Historically, the RBI had been sterilizing the effects of significant capital inflows on domestic liquidity by offloading parts of the stock of Government Securities held by it. The MSS was devised since continuous resort to sterilization by the RBI depleted its limited stock of Government Securities and impaired the scope for similar interventions in the future.

Statement 1: Under this scheme, the GoI borrows from the RBI (such borrowing being additional to its normal borrowing requirements) and issues Treasury-Bills/Dated Securities that are utilized for absorbing excess liquidity from the market. Therefore, the MSS constitutes an arrangement aiding in liquidity absorption, in keeping with the overall monetary policy stance of the RBI, alongside tools like the Liquidity Adjustment Facility (LAF) and Open Market Operations (OMO). The securities issued under MSS, termed as Market Stabilization Scheme (MSS) Securities/Bonds, are issued by way of auctions conducted by the RBI and are done according to a specified ceiling mutually agreed upon by the GoI and the RBI.

Statement 2: It was not launched with the objective of regulating or controlling government borrowing. It is just that the government securities are involved in the operation for offloading liquidity from the market.