RBI buys $10-bn worth IMF notes

The Reserve Bank has entered into an agreement buy up to $10 billion (over Rs 45,000 crore) worth notes from the IMF to help the multilateral agency shore up its resources for assisting countries hit by the global financial meltdown.

The International Monetary Fund (IMF) today said it signed an agreement with the RBI, under which the apex bank would purchase up to $10 billion worth notes, which are denominated in SDRs (special drawing rights), the Fund's unit of account, with maximum maturity of five years.

"The agreement offers India a safe investment instrument at the same time as boosting the Fund's capacity to help its members weather the global financial crisis, and to facilitate an early recovery from the worldwide economic crisis," the IMF said in a statement in Washington.

Separately, the RBI said the deal is part of its international efforts to support the Fund's lending capacity. "This agreement is a temporary bilateral arrangement for an initial period of one year, which may be extended by up to two years," the RBI statement said.

The RBI bank said permanent increases in the resources of IMF are expected to take place through an increase in quotas and standing borrowing arrangements which are currently under negotiation.

"With the signing of this agreement by the RBI with the IMF, India as member of the G-20, has fulfilled its commitments in this regard," it added. The G-20 meeting held last April, had also endorsed to treble IMF's resources to $750 billion.

The IMF executive board had approved the framework for the issuance of the notes to member-countries and their central banks in July 2009. "The principal of the notes will be denominated in SDR (special drawing rights), the Fund's unit of account, which is a currency basket composed of the US dollar, euro, yen, and pound sterling.

"Interest payments will be made quarterly, at the official SDR interest rate, which is a weighted average of three-month interest rates in these currencies," the IMF had said earlier.

Once purchased by member-governments, or their central banks, the notes would be tradeable within the official sector, which includes all IMF members, their central banks, and 15 multilateral institutions which are designated holders of SDRs.