The Bangladesh Bank on Tuesday slashed interest rate on loans from the export development fund (EDF) by one percentage points following demand from the exporters in the context of a fall in export earnings in four months (July-October) of the current fiscal year compared with that in the same period of last fiscal year.
A BB circular issued on the day said that the interest rate was reduced with a view to facilitating export.
The central bank said that the banks would be charged six-month USD LIBOR (London Interbank Offered Rate) including another 0.5 per cent against loans from BB’s export development fund.
Along with the interest rate that would be charged by the central bank, the banks would be allowed to charge the exporters another one percentage points for the funds.
The reduced rate will be applicable to the loans to be disbursed till June 30, 2020.
As per the BB’s earlier circular, the banks were charged six-month USD LIBOR including another 1.5 per cent against loans from the BB’s export development fund and the banks were allowed to charge the exporters six-month USD LIBOR including another 2.5 per cent for the loans from EDF.
An increase in LIBOR in the international market was below 0.5 per cent in the year 2015 and the yearly average LIBOR has increased to around 2.38 per cent in this year.
Due to the increase in LIBOR, cost of fund for the exporters has increased and thus impacting the country’s export earnings.
A BB official said that the exporters would get more advantage if the LIBOR decreased in the coming days.
As per the latest data, the country’s export earnings fell in the four months (July-October) of FY20.
The country’s export earnings in July-October of FY20 fell by 6.82 per cent to $12.72 billion from $13.65 billion in the same period of FY19.
The BB introduced the EDF in 1988 with a size of $30 million, which gradually increased.
For the last time in the year 2019, the BB increased the size of EDF to $3.5 billion from $3 billion.
Banks can borrow US dollar funds from the EDF against their foreign currency loans to manufacturer-exporters for input procurements.
Due to the setback in the country’s export earnings in FY20, the Bangladesh Garment Manufacturers and Exporters’ Association president Rubana Huq raised the demand, among others, at a meeting with Bangladesh Bank governor Fazle Kabir on October 7.
For improving competitiveness of the country’s exporters, the central bank has allowed devaluation of the taka against the US dollar with the greenback increasing to Tk 84.8 on Tuesday from Tk 84.5 on October 1 this year.
Rubana on Tuesday expressed her satisfaction over the BB’s decision on reducing interest rate on loans from the EDF.
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