The Reserve Bank of India has agreed to a $400 million currency swap facility for Sri Lanka till November 2022.The Central Bank of Sri Lanka had sought the swap facility to help bolster the pandemic hit island nation’s foreign exchange reserves. The RBI’s action comes in the wake of a recent bilateral talk.The meeting, in which officials from the Ministry of External Affairs, Ministry of Finance, and the EXIM Bank interacted with representatives of the Sri Lankan government.
About swap facility
Central bank liquidity swap is a type of currency swap used by a country's central bank to provide liquidity of its currency to another country's central bank. In a liquidity swap, the lending central bank uses its currency to buy the currency of another borrowing central bank at the market exchange rate, and agrees to sell the borrower's currency back at a rate that reflects the interest accrued on the loan. The borrower's currency serves as collateral.