Cabinet approves RBI’s currency swap agreement with Central Bank of Sri Lanka

The union cabinet on Wednesday gave its ex-post-facto approval for the Reserve Bank of India to enter into an agreement with the Central Bank of Sri Lanka for extending a $1.1 billion special (ad-hoc) currency swap, which is outside the framework on currency swap arrangement for SAARC member countries.

India has been operating a currency swap facility to SAARC member countries since 2012, which is available to all SAARC member countries with a floor of $100 million and a ceiling of $400 million, within an overall limit of $2 billion and is valid till 14 November 2015.

RBI in a letter dated 18 February 2015, had proposed to make available $400 million to Sri Lanka under this framework and the remaining $1.1 billion as a special/ad-hoc swap facility outside the framework, but with the same terms and conditions, for 6 months against the request of the Central Bank of Sri Lanka.

This will provide Sri Lanka a safety net against the probable volatility of their currency and provide short-term liquidity that would contribute to Sri Lanka's economic recovery. This will also strengthen India's bilateral relations and economic ties with Sri Lanka, a cabinet release said.