INR: Currency Swap Facility By January end, Bhutan will be able to avail INR (Indian Rupee) 5.5B through the SAARC currency swap facility, established in May last year, which central bank officials say, should ease the economy’s Rupee shortage for at least six months.
“The Indian government has approved all bilateral agreements, and it would be signed between the Royal Monetary Authority and the Reserve Bank of India by end of this month,” an official from the authority said. “Thereafter, actual flow of fund will take place.”
Bhutan will be required to place an equivalent amount of local currency (Ngultrum), or currency denominated government security bills, in the SAARC swap pool fund in two three-month installments.
The interest rate for the swap is 6.5 percent, which is based on the Indian policy rate, which is 8.5 percent minus 200 basis points (two percent).
This is a much less expensive option to avail INR, compared with Rupee borrowings from Indian commercial banks, such as State Bank of India (SBI) and Punjab National Bank (PNB), which charge interest rates of 10 percent and 10.5 percent respectively.
According to latest figures available with RMA, the economy has almost breached the limit of Rupee borrowings from the existing line of credit extended by India.
Rupee borrowings today total Rs 17.5B, availed from SBI, PNB, and the government of India credit facility, which has an interest rate of five percent.
Borrowings from SBI, which has a ceiling of Rs 10B, has reached Rs 9B. With the GoI facility, the Rs 6B limit has been exhausted, and from PNB Rs 2.5B has been borrowed of the ceiling of Rs 5B.
This means, without the swap facility, the economy can borrow only Rs 3.5B more from the existing arrangement.
These borrowings are mostly on account of private and government imports, including fuel, food, and other commodities, but does not include borrowings related to the ongoing construction of hydropower projects.
The money from the swap arrangement, according to central bank officials, would be utilised to pay off borrowings taken from the existing overdraft facility.
The idea to set up a swap facility among SAARC nations, to improve negative balance of payments in the region, came in during the SAARC central banks’ governors meeting in Nepal last year.
The reserve bank of India agreed to set aside USD 2B for the facility. Member countries are allocated an amount each, derived from their export values, they also have the choice to make withdrawals, either in dollars or in rupees, depending on their requirements.
For withdrawals in dollars, the interest rates are fixed, based on the LIBOR (London interbank offered) rate.
By Nidup Gyeltshen