The central bank has increased interest rates to discourage lending to Bangladesh Bank’s Export Development Fund (EDF). Now exporters have to pay about 7 percent interest to take loan from this fund. So far the interest rate was 4 and a half percent.

Bangladesh Bank’s Foreign Exchange and Policy Department issued a circular on Sunday (01 September).

As per the new guidelines, EDF interest will be determined by adding 1.50 percent as margin to the Secured Overnight Financing Rate (SOFR). At present, the interest rate in SOFA system is 5.39 percent. If one and a half percent is added to that, the interest rate stands at 6.89 percent. The previous rate of interest was 4.5 percent. Accordingly, the interest rate increased by 2.39 percent.

According to the directive, from February 2023, Bangladesh Bank has been bringing 3 percent secured charges from authorized dealers (ADs) of commercial banks. And the AD banks were collecting interest at the rate of 4 and a half percent from the customers. But in the light of the new decision from Bangladesh Bank AD, under the new rules, banks will collect 1.5 percent interest with SOFA rate and additional 1.50 percent SOFA rate from the customer. However, since the SOPR rate is variable, the EDF loan will depend on the bank-customer relationship.

It is known that in 1989, the EDF fund was formed with 38 lakh 72 thousand dollars. EDF’s fund size has been increased to $7 billion due to increased foreign exchange reserves in the country during Covid. However, recently the EDF funds have dropped below 3 billion dollars due to continuous reductions to reduce the pressure on Bangladesh Bank’s reserves.