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India, Japan sign $75 billion currency swap agreement

Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe held delegation-level talks during which the two leaders discussed a range of bilateral, regional and global issues including the situation in the Indo-Pacific region.

india Updated: Oct 29, 2018 22:47 IST
HT Correspondent
HT Correspondent
New Delhi
Japan,PM Modi,Shinzo Abe
Prime Minister Narendra Modi with his Japanese counterpart Shinzo Abe at a hotel in Yamanakako village, Yamanashi prefecture on October 28, 2018. (AFP File Photo)

India and Japan concluded a $75 billion bilateral currency swap agreement on Monday, with New Delhi saying the measure will improve confidence and stability in the foreign exchange and capital markets.

The decision on the pact was made during Prime Minister Narendra Modi’s annual summit with his Japanese counterpart Shinzo Abe in Tokyo.

The agreement will also strengthen and widen the diversity of economic cooperation, the Indian government said.

During Abe’s visit to China last week – the first by a Japanese premier since 2011 – the two sides concluded a currency swap agreement for 200 billion yuan (almost $29 billion) on Friday after a gap of five years.

The new agreements by Japan reflect efforts to counter growing uncertainty in global markets, largely due to unilateral actions by the Trump administration and the trade war between the US and China. Modi, who was on a two-day visit to Japan, and Abe held wide-ranging talks during which they agreed to deepen economic and security cooperation, including the start of a 2+2 dialogue between the defence and foreign ministers. “With a view to enhancing financial and economic cooperation, governments of Japan and India welcomed the agreement to conclude a Bilateral Swap Arrangement (BSA) of $75 billion,” said the vision statement issued after the summit. The currency swap arrangement was described by India’s finance ministry as a “high point” of economic and financial pacts with Japan. It represented an increase of 50% over the last bilateral currency swap pact, signed in 2014 and effective till December 2015.

The agreement, the finance ministry said, should “aid in bringing greater stability to foreign exchange and capital markets in India...This facility will enable the agreed amount of foreign capital being available to India for use as and when need arise.”

It reflected the “depth of mutual trust and understanding, personal relationship and warmth” between Modi and Abe, the statement said.

The finance ministry said the arrangement would help contain the current account deficit and volatility in the rupee, which has been Asia’s worst performing currency this year. Foreign investors have pulled out ~35,600 crore from India’s capital market this month on concerns over rupee depreciation, a global trade war and rising crude prices.

“Today’s decision of entering into currency swap agreement is another important measure towards improving confidence in the Indian market. This facility will not only enable the agreed amount of capital being available to India…it would also help in bringing down the cost of capital for Indian entities while accessing the foreign capital market,” the statement said.

(With agency inputs)

First Published: Oct 29, 2018 17:17 IST