Loans from export dev fund made costlier

Bangladesh Bank yesterday raised the interest rate on loans availed from its export development fund (EDF) by 50 percentage points to make borrowing costlier in an effort to save foreign currencies. 

As per the new decision, if manufacturers and exporters take loans from the EDF, they have to pay interest at the rate of 4.5 per cent whereas previously it was 4 per cent.

Meanwhile, commercial banks have to pay 3 per cent whereas it was 2.50 per cent earlier, according to a BB notice.

Banks first take money from the EDF and then use it to disburse loans among businesses.

The central bank started to increase the interest rate in July last year, when clients had to pay 2 per cent.

This means the interest rate has increased 125 per cent in the past seven months.

A Bangladesh Bank official said the country's foreign exchange market has been facing volatility in recent months, which was why the central bank was trying to reduce the spending of dollars to alleviate the stress.

The foreign exchange reserves of Bangladesh have already decreased to a large extent thanks to higher import payments against slower-than-expected export earnings and feeble remittance inflow.

The foreign exchange reserves stood at $32.29 billion on January 25 in contrast to $45.15 billion a year ago.

So, the central bank is now putting in the efforts to decrease the spending of dollars by taking different measures.

International Monetary Fund (IMF) earlier asked the central bank to calculate its foreign exchange reserves, excluding the amount kept aside for the EDF.

Under such a situation, the central bank has now discouraged clients from taking loans from the EDF by increasing the interest rate.

The EDF has already been reduced to less than $6 billion from $7 billion.