Bhutan to soon get Rs 5.5 bn from SAARC currency swap arrangement

Just as Bhutan’s rupee borrowings are about to touch the ceiling there could soon be some major relief as Bhutan will be entitled to get USD 100 mn or Rs 5.5 bn from the Reserve Bank of India for a period of six months.

This is under the SAARC currency swap arrangement which was set up in early 2012.

The interest rate will average around 6.5 percent for the short term rupee loan from the RBI.

The Royal Monetary Authority Governor Daw Tenzin said, “The RBI under Government of India’s instruction has set aside USD 2 bn for the currency swap for SAARC countries. Bhutan going by the size of our economy is entitled to USD 100 mn.”

According to the RMA Annual report the Reserve Bank of India on November 15, 2012 announced calls to all SAARC member nations to apply for the bilateral SWAP arrangement. “The RMA and RGOB will be entering in its first Rupee SWAP arrangement with India in early 2013 for a sum of USD 100 million (Rs 5.5 bn),” says the report.

The Governor said that some formalities and legal work were pending but the money would be coming in.

In a 16, May 2012 meeting of SAARC Finance Governors in Pokhara, Nepal the RBI announced the SAARC currency swap facility.

According to the RBI the Swap Arrangement is intended to provide a back stop 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 a need for short-term liquidity due to market turbulence.

The SAARC Swap facility was offered by the Reserve Bank of India pursuant to the decision of SAARC Finance Ministers at the SAARC Ministerial Meeting on Global Financial Crisis held on February 28, 2009, which noted that “A major cause of current concern in the region is the drying up of credit and the contraction of financial markets. Mechanisms must, therefore, be developed aimed at creating bilateral arrangements in the region to address short-term liquidity difficulties and to supplement international financing arrangements.”

It is expected that this swap facility will further economic cooperation within the SAARC region, pave the way for increased intra-regional trade, and contribute to enhancing our collective welfare.

For availing of the facility, the central banks of requesting countries will need to enter bilateral swap agreements, which need final approval from the Government of India. The Reserve Bank’s proposal to offer swap facility to SAARC member countries had earlier been approved by the Indian Union Cabinet.

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 US$ 100 million and a maximum of US$ 400 million per country.

Under the facility, a member country can make withdrawals of US Dollar, Euro or Indian Rupee in multiple portions.

For rupee withdrawals, the normal interest rate is the RBI repo rate minus 2 per cent. Repo rate is the rate at which RBI lends to banks in India.

Repayment can either be done by putting back an equivalent amount of home currency or a currency denominated government security.

Currently as per the latest data Bhutan’s rupee borrowings have already touched more than Rs 17 bn.

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2 comments

  1. i onli hope that it would economic stability in the nation

  2. Avishek Gazmere

    Is Bhutan using its USD reserve to buy Indian currency?

    Or is this a loan for Indian currency? I read in the third paragraph that an interest rate of 6.5 percent has been applied — but to the loan (and precisely which loan in the article) or the USD reserve of Bhutan?

    So Bhutan is being charged a loan to convert its USD reserve for Indian currency?

    Clarity Please!

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