RBI signs $1.1 billion currency swap deal with Sri Lanka

RBI signs $1.1 billion currency swap deal with Sri Lanka

The new agreement valid for six months is in addition to the existing framework on currency swap arrangement for the member countries of SAARC

The Dollar Business Bureau

The Reserve Bank of India (RBI) on Friday signed a special currency swap agreement with the Central Bank of Sri Lanka. The move is aimed at evading any impact of possible volatility in foreign exchange on the bilateral trade. The new agreement which will be valid for six months is in addition to the existing framework on currency swap arrangement for the member countries of SAARC (South Asian Association for Regional Cooperation), RBI said in a statement. As per the agreement, the Central Bank of Sri Lanka can draw up to USD 1.1 billion from RBI for a period of six months. In March this year, the Reserve Bank had already signed a currency swap agreement with the island country for US$ 400 million under the SAARC currency swap framework within the overall limit of USD 2 billion. The March agreement is valid for three years. “The swap arrangements are intended to provide a backstop line of funding for the SAARC member countries to meet any balance of payments and liquidity crises till longer term arrangements are made or if there is need for short-term liquidity due to stressed market conditions,” the RBI said. The proposal for additional currency swap facility was decided by the government in April based on the recommendation of the Reserve Bank of India. Apart from enhancing bilateral trade between two SAARC members, the move will also ensure financial stability in the region. Apart from India and Sri Lanka, other SAARC members include Afghanistan, Bangladesh, Bhutan, Maldives, Nepal and Pakistan.

 

July 17, 2015 | 6:20 pm IST.