In the face of large capital flows, a new facility in the form of Market Stabilisation Scheme (MSS) was instituted in April 2004. The MSS essentially seeks to differentiate the liquidity absorption of a more enduring nature by way of sterilisation from the day-to-day normal liquidity management operations.
In the foreign exchange market, the exchange rate policy adopted by India has been one of managing volatility with no fixed target, while allowing the underlying demand and supply conditions to determine the exchange rate movements over a period in an orderly way. Market players are also enabled to manage risk through various designated hedging instruments.