UAE Central Bank has signed an agreement with its Indian counterpart, the Reserve Bank of India (RBI), to enter into a Currency Swap Agreement, which is aimed at strengthening economic ties with the Asia’s second largest economy.
The Indian rupee sank to 18.70 against the UAE dirham at 11.30am UAE time this morning ( February 17, 2016), making a lifetime low.
A currency swap (or a cross-currency swap) is a foreign exchange derivative between two institutions to exchange the principal and/or interest payments of a loan in one currency for equivalent amounts, in net present value terms, in another currency.
This would mean that, depending on the terms and conditions of the agreement, the UAE’s Indian expats may be able to convert their dirham-denominated UAE loans to rupee-denominated loans in India if they move back during the tenure of the loan.
In a statement, the RBI said that “the proposed agreement will further strengthen the close economic relationship and cooperation between India and the UAE”.
“About 2.6 million strong and vibrant Indian community forms the largest expatriate group in UAE,” India’s Ministry of External Affairs said in the statement ahead of the recent India visit by His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces.
“Their positive and well-appreciated contribution in the development of their host country has been an important anchor of our excellent bilateral engagement,” the statement further noted.
The MoU was signed at RBI headquarters in Mumbai by UAE Central Bank Governor Mubarak Rashed Al Mansoori and Dr. Raghuram G. Rajan on behalf of their respective organisations.
The agreement was part of several signed between the two nations during HH’s visit. “Terms and conditions of the agreement will be firmed up through technical level discussions between the two central banks,” the RBI said in a statement.
The UAE is India’s third largest trading partner after the US and China while India is the UAE’s top trading partner.
“India and the UAE have historically enjoyed close and friendly relations anchored on mutually beneficial commercial exchanges and extensive people to people contacts. Our well-balanced bilateral trade amounted to $59 billion in 2014-15, making UAE our third largest trading partner,” India’s Ministry of External Affairs said in the statement.
“The UAE is among the largest investors in India in terms of foreign direct investments. It contributes significantly to India's energy security and is the sixth largest supplier of crude oil to India in 2014-15,” it noted.
“India has vital stakes in the security and stability of the Gulf region, which hosts over seven million Indians. This region is also the source of nearly two-third of India’s crude oil requirements and is our largest trading partner," the release added.