---
title: "Sterilisation of Forex Flows: RBI Explained | Model Diplomat"
description: "Sterilisation of Forex Flows refers to how central banks neutralise money supply changes from foreign-exchange interventions, crucial for managing inflation."
url: "https://modeldiplomat.com/learn/glossary/sterilisation-of-forex-flows"
---

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Model Diplomat Research Team · Last reviewed June 22, 2026

TL;DR

- Sterilisation is a central bank's neutralisation of the domestic money-supply impact of its foreign-exchange interventions through offsetting open-market operations.
- Why does the RBI need to sterilise rather than simply let reserves grow?
- What is the difference between OMOs and the Market Stabilisation Scheme in sterilisation?
- What are the costs of sterilisation?
- How does sterilisation relate to the impossible trinity?

[Civil Service & Diplomatic Exams](https://modeldiplomat.com/learn/civil-services/glossary)Updated June 22, 2026

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In late 2016, the RBI revived the Market Stabilisation Scheme, issuing cash-management bills to sterilise the surge of bank liquidity that followed the November demonetisation announcement.

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