COLOMBO (EconomyNext) – India’s cabinet has approved an extra 1.1 billion US dollars in currency swaps to Sri Lanka in addition to an existing 400 million US dollars available to South Asian countries taking the foreign currency swaps available to the island to 1.5 billion US dollars.
The Indian government said the cabinet chaired by Prime Minister Narenda Modi had given covering approval for a 1.1 billion US dollar swap between the Central Bank of Sri Lanka and RBI.
"This will help Sri Lanka in availing a safety net against the probable volatility of their currency and provide short-term liquidity that would contribute to Sri Lanka’s economic recovery," the Indian Government said.
The 1.1 billion US dollar facility will be for six months.
On February 18, the Reserve Bank of India has also made available 400 million US dollar swap to Sri Lanka from a facility available for South Asian countries.
Sri Lanka has lost over 2 billion US dollars in foreign reserves since August 2014 and the country’s currency has come under pressure due to loose monetary policy by the Central Bank amid a pick-up in credit, analysts have said.
Though swaps can be used especially to fund loan repayments and buy time, they cannot fix fundamental problems in the credit system or liquidity management.