India, Japan sign $75bn currency agreement

Japan and India entered into a $75-billion currency swap arrangement that will bolster the country's firepower as it battles a steep drop in the rupee's value. An agreement to this effect was signed during Prime Minister Narendra Modi's ongoing visit to Japan. A Japan had offered a $50 billion currency swap in 2013 and, before that, one for $3 billion in 2008. a government official said: “This facility will enable the agreed amount of foreign capital being available to India for use as and when the need arises.” The facility will serve as a second line of defence for the rupee after the $393.5 billion of foreign exchange reserves that the Reserve Bank of India (RBI) has at its disposal. Under the arrangement, India can acquire dollars from Japan in exchange for rupees. Conversely, Japan can also seek dollars from India in exchange for yen. The arrangement will be used only when required and will help meet short-term liquidity mismatches. India has taken several steps to contain its current account deficit, which could swell to an estimated 2.8 per cent of GDP and is seen as the root cause of rupee volatility.