New Delhi/Mumbai, Aug. 27: India is weighing the option of entering into currency swap arrangements with its major trading partners to stabilise the rupee, which sank to a new low of 66.30 on Tuesday.
“We need to look at the possibility of currency swap with some of the countries. This will not only help to stabilise the rupee but increase the availability of credit for the exporters, especially, in the SME sectors, and also push project exporters and support the labour-intensive sectors,” commerce minister Anand Sharma said today during the Board of Trade (BoT) meeting.
“Currencies of all the major emerging economies are falling, but in percentage terms the rupee’s fall has been sharpest,” he added.
Sharma said he was going to take up the proposal with finance minister P. Chidambaram and announced the formation of a task force under the chairmanship of commerce secretary S.R. Rao. The task force will have to submit a report within a month.
This is not the first time that India is planning to enter into a currency swap arrangement.
India and Japan had a currency swap arrangement for up to $3 billion that was in place between June 2008 and June 2011. In December 2012, India scaled up this currency swap pact to $15 billion.
Under the new arrangement, India can access US dollars from the Bank of Japan in an unforeseen economic situation with the obligation to return it at a later date.
The agreement allows both countries to swap their local currencies (yen or rupee) against the dollar to “address short-term liquidity difficulties”. This arrangement with Japan runs till December 2015.
However, there is a rider in the swap arrangement with Japan. The agreement will be activated when an IMF-support programme is established, which is expected in the near future.
In the absence of an IMF-support programme, the two countries can draw down only 20 per cent of the maximum amount — or $3 billion.
Rafeeque Ahmed, president of the Federation of Indian Export Organisations, said, “We can look at currency swap arrangement with China, Japan and the European Union, among other nations.”
“India should look at bilateral swaps to be entered into to build the confidence that there is no shortage. Rather there are currencies available waiting to be tapped. This is a very important point to be discussed and rationalised,” said Rana Kapoor of Yes Bank.
On Monday, Brazil’s central bank sold 10,000 currency swap contracts worth $497.9 million at an auction. The bank plans to hold the currency swap auctions till December 31.
It will hold auctions of up to $500 million daily Mondays through Thursdays and a dollar repurchase auction of up to $1 billion on Fridays.