Which of the following statements correctly describes Market Stabilization Scheme ........

Economic and Social Issues Monetary and Fiscal Policy

Which of the following statements correctly describes Market Stabilization Scheme?

It is a monetary policy intervention by the RBI to withdraw excess liquidity (or money supply) by selling government securities in the economy

It is a fiscal policy intervention by the RBI to withdraw excess liquidity (or money supply) by selling government securities in the economy

It is a fiscal policy intervention by the Central Government to withdraw excess liquidity (or money supply) by selling government securities in the economy

It is a monetary policy intervention by the Central Government to tackle volatility in forex markets

None of the options given above

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Explanation:

Market Stabilization scheme (MSS) is a monetary policy intervention by the RBI to withdraw excess liquidity (or money supply) by selling government securities in the economy.The issued securities are government bonds and they are called as Market Stabilisation Bonds (MSBs). Thus, the bonds issued under MSS are called MSBs. These securities are owned by the government though they are issued by the RBI. It is to be remembered that government is the owner of the securities. Usually, government’s securities (bonds/treasury bills) are sold or issued by the RBI as the central bank is the banker to the government.