The Reserve Bank of India (RBI) has taken a significant step in strengthening economic cooperation with the Maldives by signing a currency swap agreement with the Maldives Monetary Authority (MMA) under the SAARC Currency Swap Framework 2024-27. This agreement aims to provide a backstop line of funding for short-term foreign exchange liquidity requirements or short-term balance of payments stress until longer-term arrangements are made.
Key Terms of the Agreement:
- Financing Support: The MMA is eligible for USD 400 million under the US Dollar/Euro Swap Window and Rs 30 billion (Rs 3,000 crore) under the INR Swap Window.
- Validity: The agreement is valid until June 18, 2027.
- Purpose: The SAARC Currency Swap Framework, operational since November 15, 2012, provides a safety net for short-term foreign exchange liquidity requirements or balance of payments stress.
This currency swap pact enables the MMA to draw funds in multiple tranches, up to a maximum of USD 400 million from the RBI ². The facility can be used to obtain foreign currency loans at a better interest rate or to hedge transaction risk on existing foreign currency loans.
The SAARC Currency Swap Framework allows for swap arrangements between SAARC countries, providing liquidity support to meet short-term foreign exchange requirements or prevent balance of payments crises. The RBI offers a swap arrangement within the overall corpus of USD 2 billion, with withdrawals possible in US dollars, euros, or Indian rupees.
This agreement underscores the RBI’s commitment to fostering economic cooperation and stability within the SAARC region. By providing access to financing support, the RBI aims to bolster the Maldives’ economic resilience and promote regional economic growth.
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