The Silicon Review ^Asia

India and Japan have entered into a $75B bilateral currency swap agreement. The deal was announced on Monday.

India’s Prime Minister Narendra Modi signed the agreement in Japan. The move by India will hopefully support its firepower as it battles a steep drop in the rupee’s value.

The new swap agreement is likely to be 50 percent higher than the previous deal. Earlier, India entered into a $50B deal in 2013 and, before that, one for $3B in 2008. According to a government official, the swap agreement will help India in utilizing the foreign capital whenever the country needs. The new deal should support the country’s foreign exchange and capital market in bringing stability.

The agreement will also pave the way for India to buy dollars from Japan in exchange for rupees. It will also act as a second line of defense for the rupee after the $393.5B of foreign exchange reserves that the RBI has at its disposal. Additionally, it will improve market sentiment, curbs speculative pressure on the rupee.

The agreement will be utilized whenever required and will help meet short-term liquidity mismatches. Under the agreement, Japan can also exchange Yen with a rupee for dollars.

India’s main cause of rupee volatility is its current account deficit. The country has taken several steps to control the problem; otherwise, it could swell to an estimated 2.8% of GDP.

Hopefully, the new swap deal is likely to cool down India’s current financial market.