The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its ex-post-facto approval for entering into an agreement with the Central Bank of Sri Lanka for extending US$1.1 billion as a special /ad-hoc swap outside the Framework on Currency Swap Arrangement for SAARC Member Countries.

 India has a Framework on Currency Swap Arrangement for SAARC Member Countries since 2012. The facility is available to all SAARC member countries with a floor of US $100 million and ceiling of US $ 400 million within overall limit of US$ 2 billion and is valid till November 14, 2015. RBI in their letter dated February 18, 2015 has proposed to make available US$400 million to Sri Lanka under this Framework and the remaining US$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 help Sri Lanka in availing 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.

Currency swap agreement permits central bank to provide short-term liquidity and a safety net against currency volatility. Approval permits the central bank to enter a currency swap with the Sri Lankan monetary authority, using available capacity under the SAARC Currency Swap Arrangement and providing an additional special/ad-hoc swap outside the Framework on identical terms for six months, to deliver short-term liquidity support and a safety net against currency volatility.