B Mirror Report: Bangladesh Bank has introduced a new facility allowing importers to lock in future interest rates on foreign currency import loans, aiming to reduce the risks associated with fluctuations in global benchmark interest rates.

In a circular issued on Thursday, the central bank said importers obtaining foreign currency financing under supplier’s credit and buyer’s credit for usance-based imports will now be able to enter into Forward Rate Agreements (FRAs) with authorized dealer (AD) banks.

The new mechanism will enable importers to fix interest rates in advance, reducing uncertainty over financing costs caused by changes in international benchmark rates, particularly the Secured Overnight Financing Rate (SOFR).

According to the circular, FRAs can only be used for hedging genuine interest rate exposure linked to actual import transactions. Speculative transactions or uncovered positions will not be permitted.

Under the arrangement, financial settlement will be based on the difference between the agreed forward rate and the prevailing benchmark interest rate during the contract period.

Bangladesh Bank also issued risk management guidelines for banks, requiring them to fully offset any risks arising from these contracts through same-day back-to-back transactions, ensuring they do not carry market risk on their own books.

The central bank capped banks’ pricing margin at 10 basis points and stipulated that a bank’s total outstanding forward rate agreements must not exceed 25% of its average monthly foreign currency inflows over the previous 12 months.

The circular further emphasizes the use of internationally accepted contractual standards, daily mark-to-market valuation, robust internal risk management, proper documentation, and settlement at prevailing market rates in the event of early contract termination.