India approves $400m currency swap for Saarc nations
India yesterday approved an amendment to a “Framework on Currency Swap Arrangement among Saarc member-countries” to incorporate a “Standby Swap” amounting to $400 million to guard against global economic volatility.
The $400 million swap amount is operated within the overall size of the facility of $2 billion.
It builds in flexibility with respect to modalities of its operation such as period of swap and rollover after due consideration of conditions of requesting Saarc countries and domestic requirements of India.
The clearance was given by the Indian cabinet meeting presided by Prime Minister Narendra Modi.
It is an “ex-post facto approval for the amendment to the 'Framework on Currency Swap Arrangement for Saarc countries'”, an official statement said.
It said due to heightened financial risk and volatility in the global economy, short-term swap requirements of the South Asian Association for Regional Cooperation (Saarc) countries could be higher than the agreed lines.
“The incorporation of 'Standby Swap' within the approved Saarc Swap Framework would provide necessary flexibility to the Framework and would enable India to provide a prompt response to the current request from Saarc member-countries for availing the swap amount exceeding the present limit prescribed under the Saarc Swap Framework,” according to the statement.
The Indian cabinet had approved the framework on March 1, 2012 to provide a line of funding for short-term foreign exchange requirements or to meet balance of payments crises till long term arrangements are made or the issue is resolved.
Under the facility, India's Reserve Bank of India (RBI) offers swaps of varying sizes in US dollars, euro or Indian rupees to each Saarc member country depending on their two months' import requirement and not exceeding $2 billion in total.
The swap amount for each country has been defined in the facility, subject to a floor of $100 million and a maximum of $400 million. Each withdrawal will be for a three-month tenure and up to a maximum of two rollovers.
The RBI will negotiate the operational details bilaterally with the central banks of the Saarc countries availing the standby swap.