Wednesday, May 16, 2012

RBI offers $2 billion swap arrangement facility for SAARC countries

The Reserve Bank of India (RBI) will offer a swap arrangement of $2 billion both in foreign currency and Indian rupees to member countries of the South Asian Association of Regional Co-operation (SAARC) to strengthen regional financial and economic cooperation.
With the new facility, SAARC member countries — 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 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 crisis until long-term arrangements is 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 Yubraj 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. "The increase in food price in the SAARC will increase poverty in the region," he added.
Similarly, the Asian Clearing Union (ACU)'s meeting, hosted by Nepal Rastra Bank, kicked off in Pokhara from yesterday. The 41st board of directors meeting is scheduled to be held today along with the technical meeting.
The central banks of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are the members of ACU that is a clearing house operating in various regions of the world. It allows member countries to settle payments for intra-regional transactions among the participating central banks on a multilateral basis.
The settlements of payments for exports and imports between nations are undertaken by banks in New York which is a costly affair so ACU -- established in 1974 to coordinate inter regional payments among the central banks in Asia -- undertakes the settlements of the payments among the member nations every two months and the remaining payments are settled by banks in New York.
They discussed on local currency payment in regional trade instead of US dollar payment in the meeting, where the representatives of World Bank and Asian Development Bank, apart from the SAARC representatives were also present. "We also discussed on how to simplify the import and export of petroleum products," Khatiwada said.


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