06.10.2007

• All about MSS?
• You should have noticed that we have been noting frequently about Market Stabilization Scheme of the RBI in one context or the other. But today’s ET has given a low down on this for good measure. Let’s take a look.
• The scheme was introduced by RBI in 2004 to tackle the surging inflows of dollars. The so called ‘sterilization’ operations. When there is an inflow of dollars into the country, there will be a corresponding increase in the rupee float in the system. Because that excessive float results in inflationary pressures, the RBI steps in and tries to suck out the excess float from the system. Hence it issues the MSS bonds. Banks and FIs subscribe to these bonds and the rupee float gets reduced in the system. But then this comes with a cost -- the rate of interest on the bonds.
• How is this different from the other bonds that the government issues for its normal borrowing programme? Other normal bonds – often called the g-secs (guilts, government securities etc.) are for longer durations. Typically up to 30 years long. But MSS bonds are for shorter duration – typically up to 2 years. The monies mobilized through the sale of MSS bonds are held in a separate account and are used only for redemption of the MSS bonds at an appropriate time.
• There is a ceiling of Rs. 1,50,000 crores for this MSS scheme. But the RBI has approached the government recently and this was raised by another Rs. 50,000 crores. The actual MSS mobilizations have already crossed the Rs. 1,35,000 mark by the end of September. With more inflows of dollars likely it is quite possible that the RBI has to approach the government again and the government will have to raise the ceilings once again. But is that a solution?
• How long can the RBI/Government keep fighting shy of a strengthening rupee? If it allows the rupee to strengthen against the dollar, it will have some sobering effect. The policy glitches that still remain in increasing the absorptive capacity of the economy have to be removed.
• One of you asked me what a reserve currency is. Take a look at my explanation on it.
• A reserve currency (or anchor currency) is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. The US dollar was designated as a reserve currency in the Bretton Woods agreement in 1944. But over the years, the magnitude and strength of the economies of Japan, the Europe and the UK ensured that all these currencies also are treated as reserve currencies by various countries. Nobody designates a currency as reserve currency. But the practice of holding substantial foreign reserves in such a currency makes it one.
• Remember SELENE?
• The Japanese lunar probe has reached its orbit. It was nicknamed Kaguya after a fairy-tale princess.
• SBI and government holding in it
• About 59.73% of the bank is held by the government.
• In accordance with the Basel norms, the bank has to raise an additional Rs. 4,850 crores of capital by March, 2008.
• Its Chairman OP Bhatt has said that the bank is going to come out with a follow-on, right issue or preference shares to raise this capital.
• Some language lessons:
• “Relief redux: more service tax refunds on cards for exporters” says a headline in today’s ET. Do you know what exactly is meant by ‘redux’?
• It means bringing back something. Or a repeat of the same thing again and again. The dictionary meaning of redux is: brought back. Usage example: "the Victorian era redux".
• General Insurance Council
• Its Chief Executive is KN Bhandari
• What is ‘creative destruction’?
• Companies that once revolutionized and dominated new industries like Xerox in copiers and Polaroid in instant photography have seen their profits fall and their dominance vanish as rivals launched similar or improved designs. Similarly the cassette tape recorder replaced the 8-track, only to be replaced in turn by the compact disc (CD) which is now being replaced by the MP3 players. This process is called the process of creative destruction.
• Press Council of India
• Chairman: Justice (Retd.) G. N. Ray
• He favoured the setting up of a common, independent commission to regulate the functioning of the entire media.
• At present electronic media is beyond the purview of the PCI.
• Ig Nobel awards
• The 17^th annual version was held recently at Harvard university in Massachusetts, US.
• The awards are a tongue-in-cheek homage to the Nobel prizes.