The central bank yesterday cut interest rate on its export development fund (EDF) by 1 percentage point with a view to giving a boost to sluggish export earnings.
As per a notice issued by the Bangladesh Bank, manufacturers who export will now be able to borrow foreign currency loans at LIBOR (London Interbank Offered Rate) plus 1.5 percent, down from 2.5 percent previously.
LIBOR, which serves as a global benchmark for short-term interest rates, has been hovering between 1.90 percent to 1.92 percent for the last few days, meaning the cost of foreign currency loans will remain at about 3.42 percent.
The banking regulator also cut the interest rate for banks as they will be charged LIBOR plus 0.50 percent from the previous rate of LIBOR plus 1 percent.
Exporters initially apply to banks for the loans, after which lenders request the central bank to provide the fund.
The latest central bank decision will encourage exporters as their production cost will decrease significantly, said a Bangladesh Bank official.
This will have a positive impact on the decreasing trend of export earnings, he said.
In the first four months of the fiscal year export receipts fell short of target by $14.33 billion by nearly 7 percent, according to data from the Export Promotion Bureau.
Furthermore, last month exports raked in $3.07 billion, down 17 percent year-on-year.
Exporters will have to pay back the foreign currency loan within six months from the date of receiving the fund.
The repayment tenure can be extended by three months provided the application is satisfactory.
The latest policy will help exporters bring down their manufacturing cost and encourage them to manufacture more exportable items, the BB official said.
“This is a very good move. It will make us competitive,” said a bicycle exporter who has been availing the fund for more than a decade now.
The EDF was launched in 2005 with an initial amount of $100 million; it was gradually increased to $3.50 billion.
Exporters from six sectors can get loans from the EDF and the central bank can set a separate credit ceiling for them.
For instance, a single member of the Bangladesh Garment Manufacturers and Exporters Association is allowed to get $25 million from the fund and a member of the Bangladesh Knitwear Manufacturers and Exporters Association $15 million.