The Reserve Bank has signed a special currency swap agreement with the Central Bank of Sri Lanka that will allow the latter to draw up to $1.1 billion.
Under the arrangement, the Sri Lankan bank can draw up to $1.1 billion for a maximum period of six months.
This special arrangement is in addition to the existing Framework on Currency Swap Arrangement for the Saarc member countries.
In March, RBI had signed a Currency Swap Agreement with the Central Bank of Sri Lanka for $400 million under the existing Saarc Currency Swap Framework within the overall limit of $2 billion.
“The swap arrangements are intended to provide a backstop line of funding for the Saarc member countries to meet any balance of payments and liquidity crises till longer term arrangements are made or if there is need for short-term liquidity due to stressed market conditions,” RBI said in a release.
The proposal to extend the additional currency swap facility of $1.1 billion for a limited period was decided by the government in April based on the recommendation of RBI.
It was intended for mitigating the possible currency volatility in the spirit of strengthening India’s bilateral relations and economic ties with Sri Lanka, RBI said.