RBI asks market participants to submit bids for MSS

Mumbai: The Reserve Bank of India (RBI) has asked participants to submit their bids for the market stabilisation scheme (MSS) in physical form. This has been done on account of a system failure, the central bank said.

The RBI will auction dated securities worth Rs3,000 crore (nominal) on April 18, 2007 under the MSS.

In consultation with the government of India, "7.55 per cent government stock 2010" will be sold (re-issued) through a price-based auction using multiple price method. The RBI will conduct the auction at its Mumbai (Fort) office on April 18.

Up to five per cent of the notified amount of the sale of the stock will be allotted to eligible individuals and institutions as per the scheme for non-competitive bidding facility in the auction of government securities.

The results of the auction will be announced on the same day and payment by successful bidders will be accepted during banking hours on April 19, 2007.

A steady strengthening of the rupee will not only dampen export activities but will also likely escalate the cost of the MSS during the current financial year.

Though the government has projected an estimated interest outflow of Rs3,700 crore for 2007-08, the figure may be even higher. In 2006-07, the interest outflow on the MSS stood at Rs2,609 crore.

Going by the current trend, the cost of the MSS is expected to go up significantly, while exports are likely to decline.

The rupee climbed to a nine-year high on April16 as it breached the 42-mark to close at 41.90/92 against the dollar.

The rupee has shown signs of strengthening for the last few weeks mainly because liquidity became an issue with a few banks, which resorted to selling dollar to generate rupee. The sudden liquidity crunch was a fallout of the Reserve Bank of India''s (RBI) decision to hike the cash reserve ratio and repo rate, say analysts.