Sri Lanka's Central Bank will tomorrow get the first USD 400 million tranche from India under a currency swap agreement with the RBI that will help the country tackle currency volatility and promote trade.
Another USD 1.1 billion has been approved by the Indian government for augmenting the currency swap arrangement between the two Central Banks.
This additional amount is expected to be made available in due course, a central bank statement said here.
During Prime Minister Narendra Modi's visit to Sri Lanka last month, RBI agreed for a USD 1.5 billion currency swap agreement with the Sri Lankan central bank to help the island nation keep its currency stable.
The Sri Lankan rupee has been under pressure for quite some time. Despite attempts made by the central bank, the currency has been losing value since the beginning of this year.
The funds are from RBI's financing facility for South Asian Association for Regional Cooperation (SAARC) member country Central Banks.
India has a Framework on Currency Swap Arrangement for SAARC Member countries since 2012.
The facility is available to all SAARC member countries with a floor of USD 100 million and ceiling of USD 400 million within overall limit of USD 2 billion and is valid till November 14, 2015.
RBI had proposed to make available USD 400 million to Sri Lanka under this Framework and the remaining USD 1.1 billion as a special/ad-hoc swap facility outside the Framework, but with the same terms and conditions, for six months against the request of the Central Bank of Sri Lanka.
Sri Lankan Central Bank's announcement for getting the first USD 400 million tranche from India came as the rating agency, Fitch warned last week that the island's economy was facing a weakening balance of payments.
Fitch said Sri Lanka's balance of payments were weak with debt repayments drawing down reserves to less than USD 7 billion by end-March 2015 from a peak of USD 10 billion in 2014, raising concerns.