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BB raises interest rate on loan from Export Development Fund

Published : Tuesday, 3 September, 2024 at 12:00 AM  Count : 343
Business Correspondent
Bangladesh Bank (BB) has changed interest rate of dollar denominated RDF loan which will be determined now based on Secured Overnight Financing Rate (SOFAR). This method has been adopted in line with the trend of global financial market, central bank sources said.

In a letter sent to managing directors and chief executives of all banks, the central bank said authorized dealer banks can take loans from Export Development Fund (EDF) by adding 0.5 percent interest along with SOFAR rate. Dealer banks will collect 1.50 percent interest from manufacturers or exporters along with SOFAR rate.

SOFAR stands for Secured Overnight Financing Rate which is linked with interest rate on loan of New York Federal Reserve or New York branch of US central bank and published every day at 8:00 a.m. local time. 

It has been in use in Bangladesh since July last year after Libor was lifted from benchmark rate for determining global interest rates.

Bangladesh Bank used to collect 3 percent interest from authorized dealer banks for the money given by the EDF. Dealer banks used to take money from the fund and give loans in US dollars to producers and exporters. Banks used to charge 4.50 percent interest for this.

The interest on money disbursed from EDF was fixed earlier. But since SOFAR rate changes every working day of the week, so the interest rate on Export Development Fund loans will no longer be fixed. Bangladesh Bank and Dealer Banks will charge additional interest on Sofar rate in case of lending.

According to New York Fed data, Sofar rate was 5.33 percent on Monday (September 02). In that case, if you take a loan from EDF now, you will have to pay more interest than before. That is, interest rate on EDF loans has practically increased as compared to earlier while the rate has become market based.

According to Bangladesh Bank's letter, this method of determining the interest of EDF will be effective immediately. However, no changes have been made in other regulations related to EDF.

The size of EDF, which aims to boost exports, was once raised to 7 billion. But later its size was limited amid severe dollar-crisis. In April last year, Bangladesh Bank reduced the borrowing limit from EDF.



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