India and Japan on Monday entered into a $75-billion bilateral currency swap pact. This move was aimed at improving confidence in the country’s foreign exchange and capital markets. The announcement was made after the annual summit meeting between Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe in Tokyo.
This is one of the largest currency swap agreements that would enable the two major Asian economies to swap their local currencies - either Indian rupee or the Japanese yen against the US$ up to 75 billion. India had entered into currency swap pacts with Japan for lesser amounts in the past.
In 2013, the two sides had approved the enhancing the bilateral currency swap arrangement between the Reserve Bank of India (RBI) and Bank of Japan from $15 billion to $50 billion.
Commenting on the development, Economic Affairs Secretary SC Garg said in a tweet: “Bilateral swap arrangement with Japan for USD 75 billion is one of the largest swap arrangements in the world.
“Accepting Japanese request, India agreed to do away with requirement of mandatory hedging for infrastructure ECBs of 5 years or more minimum average maturity”.
The finance ministry said the currency swap agreement should “aid in bringing greater stability to foreign exchange and capital markets in India... This facility will enable the agreed amount of foreign capital being available to India for use as and when need arises”.
The facility will also help in bringing down the cost of capital for Indian entities while accessing foreign capital market, it added.
“The currency swap agreement will have a positive impact on financing India’s current account deficit,” Shaktikanta Das, member of 15th Finance Commission and former economic affairs secretary tweeted.
The island nation had signed a similar pact with Beijing for $30 billion during Japanese premier Abe’s s visit to Beijing last week for talks with Chinese President Xi Jinping to lower the tension and forge better economic ties.