HIMALAYAN NEWS SERVICE
KATHMANDU: Reserve Bank of India (RBI) will offer a swap arrangement of $2 billion both in foreign currency and Indian rupees to member countries of South Asian Association of Regional Co-operation (SAARC) to strengthen regional financial and economic cooperation.
With the new facility, SAARC members — Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka — can now approach the Reserve Bank of India to avail the facility, announced governor of the central bank of India Dr D Subbarao today at the 24th SAARCFINANCE Governors’ meeting in Pokhara.
The SAARC Swap Arrangement will have a corpus of $2 billion. India will contribute the entire fund. The swap amount available to various member central banks has been arrived at broadly based on two months import cover subject to a floor of $100 million and a maximum of $400 million per country.
The swap will be offered in US dollars, euros or Indian
rupees against the domestic currency or domestic currency denominated government securities of the requesting member country.
Under the facility, the requesting member countries can draw US dollars, euros or Indian rupees in multiple tranches. Each withdrawal will be of a three-month tenure and can be rolled over twice. The first rollover will be at the normal rate of interest, while the second one will attract 50 bps interest more than the normal interest rate that is agreed upon as per the London Interbank Offered Rate (Libor) — for three months — plus 200 basis points. The normal interest rate for Indian rupee swap is RBI Repo Rate minus 200 basis points. The Libor is the average interest rate that leading banks in London charge when lending to other banks.
For availing the facility, the central banks of requesting countries will need to enter into bilateral swap agreements, which will require final approval from the Indian government. RBI’s proposal to offer swap facility to SAARC member countries had earlier been approved by the union cabinet of India.
The swap arrangement is
intended to provide a back stop line of funding for SAARC member countries to meet
any balance of payments
and liquidity crises until long-term arrangements are made or if there is a need for short-term liquidity due to market turbulence.
The SAARCFINANCE Governors Symposium and Group Meeting with a theme ‘Food Inflation in SAARC Region’ today discussed on rising inflation and changed consumption pattern.
“The food price inflation has seen increment due to rising petroleum prices in the international market that has also increased the dependency,” said central bank governor Dr Yubaraj Khatiwada addressing the symposium that has also held a separate round table discussion on ‘Macroprudential and Monetary Policies in SAARC Region’.
SAARCFINANCE is a network of central bank governors and finance secretaries of SAARC member countries established in 1998.