Sri Lanka in a currency swap agreement with RBI


Lately, Sri Lanka approved to enter into a crucial agreement with the Central Bank of India. The motive behind which is to Promote its foreign reserves that are regularly declining due to the pandemic. The proposal of currency swap worth $400 million will ensure financial stability in the country.

The economy of Sri Lanka is striving to overcome the disastrous impact of the pandemic. The decision of lifting up the nation wide curfew on 27 April, comes after the Fitch Ratings, The American credit rating agency downgraded its economy from ‘B’ to ‘B-‘.However, the ministry thwacked the agencies in a statement that their analysis shows ‘rush to judgement’ and also highlights ‘prejudicial nature’ Admist the public health crisis where every country is struggling to breathe. The World Bank and the IMF also forecasted its economy to contract by 3% in 2020 as against a 2.4% estimated growth last year.

Sri Lankan Prime Minister Mahinda Rajapaksa as the finance minister had proposed the cabinet to enter into the agreement with the Republic Bank of India for the purpose of meeting short term international liquidity requirements. The swap arrangement is a decision two countries reach while doing trade related payment. With this announcement, Fitch warned Sri Lanka to reform its soft-peg and block the ability of its domestic operations department to inject large volumes of cash below the ceiling policy rate to stop monetary instability.

The island has also applied import restrictions in the view of local rupee falling historically low against the dollar. It now stands over 195 as against the dollar from being down to 200 mark. It has also declared conversations with the Asian Development Bank and China’s Infrastructure Investment Bank.

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