RBI, BoJ sign currency swap agreement

Mumbai: India and Japan have agreed to swap local currencies against the US dollar for up to $3 billion. The Bank of Japan and the Reserve Bank of India signed the agreement that will address short-term liquidity difficulties and supplement existing international financial arrangements, the RBI said in a release.

The bilateral swap agreement (BSA), signed by BoJ governor Masaaki Shirakawa and RBI governor Yaga Venugopal Reddy in Basel, Switzerland,  on 28 June became effective 29 June.

The BSA will also strengthen mutual co-operation between Japan and India. With the commencing of swap arrangement, the countries will have bi-annual consultations on economic and financial conditions.

The BSA enables both countries to swap their local currencies (i.e., either Japanese yen or Indian rupee) against US dollar for an amount up to $3 billion.

The BSA will be activated when an IMF-support programme already exists or is expected to be established in the near future. Nevertheless, up to 20 per cent of the maximum amount of drawing could be disbursed without an IMF-support programme.

This arrangement is a milestone in mutual cooperation between Japan and India and is expected to contribute to the stability of financial markets, the RBI said in a release.