India-Japan agree for bilateral currency swap arrangement of 75 billion USD

Tokyo, Oct 29: The Prime Ministers of India and Japan have agreed to conclude a Bilateral Currency Swap Agreement for an amount of USD Seventy Five billion.

This arrangement between Japan and India has been the high point of economic and financial agreements between the two countries, during the visit of the Prime Minister of India. This represents an increase of fifty percent over last currency swap arrangement between the two countries. It is indicative of close bonds between the two countries nurtured by the two leaders. As reported, Prime Minister of Japan Shinzo Abe has said that he is friend of India forever.

The swap arrangement should aid in bringing greater stability to foreign exchange and capital markets in India. With this arrangement in place, prospects of India would further improve in tapping foreign capital for country's developmental needs. This facility will enable the agreed amount of foreign capital being available to India for use as and when the need arises.

To encourage investment in infrastructure, RBI will address the resolution on hedging requirement.

Policy interest rate in the USA has seen gradual increase in the recent months. This is one of the causes of strengthening of dollar viz-a-viz other currencies of the world.

Strengthening of dollar is also resulting in flight of capital from emerging markets to get better assured returns. Recent months have seen Governments and Central Banks around the world, especially those of emerging economies, are taking various policy measures to address the international situation of dollar appreciation and to improve the availability of foreign capital.

To address the issues of outward flow of foreign capital, India has also taken various steps towards containing the Current Account Deficit (CAD) and rupee volatility. It has taken various measures to attract foreign capital which include relaxations in the policy for external borrowings and issuance of offshore rupee bonds (Masala Bonds), review of certain restrictions on FPI investment in debt, hike in customs duty for curtailing imports of non-essential items, promoting exports, financing standing working capital of Oil Marketing Companies by long term external borrowings etc.

Today's decision of entering into currency swap agreement is another important measure towards improving confidence in the Indian market. This facility will not only enable the agreed amount of Capital being available to India on tap for use, it would also help in bringing down the cost of capital for Indian entities while accessing foreign capital market.