Loans from export dev fund to be cheaper | The Daily Star
12:00 AM, October 29, 2020 / LAST MODIFIED: 01:31 AM, October 29, 2020

Loans from export dev fund to be cheaper

Central bank cuts interest rate to boost export sector

Bangladesh Bank has brought down the interest rate on its export development fund (EDF) even further in order to help exporters recover from the economic impact of Covid-19.

Exporters of the manufacturing sector can now avail loans at 1.75 per cent instead of the previous rate of 2 per cent, according to a central bank notice issued yesterday.

Lenders will receive the fund from Bangladesh Bank with a 0.75 per cent interest rate and will be allowed to charge a maximum of 1.75 per cent in interest from borrowers, it said.

On April 7 earlier this year, the central bank cut the interest rate on its EDF for the first time following a downturn in the country's economic activities. Before that, the interest charged was a six-month London Interbank Offered Rate (LIBOR) plus 1.50 per cent.

The six-month LIBOR stood at 0.25 per cent as of yesterday while it was 1.93 per cent during the same period a year ago.

Interest rates on lending in the global market have been on the decline as businesses are now reluctant to use loans to expand their businesses amid the ongoing economic uncertainty.

The declining trend of interest rates globally encouraged the central bank to cut its EDF rate even further, a central bank official said.

In addition, the latest cut will boost the country's export sector, he added.

Bangladesh Bank has instructed all local lenders to follow the new rate until March 31, 2021.

On April 7, the central bank also increased the EDF's volume to $5 billion from the previous $3.50 billion as a part of the government's ongoing efforts to boost exports.

"The new rate will give a positive signal to the country's exporters," said Md Arfan Ali, managing director of Bank Asia.

Beyond a doubt, this is a time-befitting decision as lower interest rates will help exporters to a great extent.

The country's export competitiveness will be stronger due to this initiative, Ali added.

The revolving fund was introduced at just $100 million in 2006. The central bank gradually increased the fund's volume due to rising demand and swelling foreign exchange reserves, which is now more than $40 billion. 

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