Bangladesh Bank increases EDF size to $5b, sets interest rate at 2pc

Staff Correspondent | Published: 21:46, Apr 07,2020

 
 

A file photo shows the Bangladesh Bank headquarters in the capital. The Bangladesh Bank on Tuesday slashed the interest rate on loans from the export development fund (EDF) to 2 per cent as part of the government-announced stimulus packages to support the exporters to combat the impact of coronavirus outbreak. — New Age photo

The Bangladesh Bank on Tuesday slashed the interest rate on loans from the export development fund (EDF) to 2 per cent as part of the government-announced stimulus packages to support the exporters to combat the impact of coronavirus outbreak.

A BB circular issued on the day also said that the size of EDF was also extended to $5 billion from $3.5 billion, setting April 1 as the effective date of the reduced interest rate.

The government on Sunday announced the stimulus packages involving Tk 72,750 crore, which are mostly in the form of loans for the businesses.

Due to the outbreak of coronavirus in the country, the government in three phases has extended the general holidays to April 14, bringing the country’s economic activities almost to a halt.

As per the revised interest rate on EDF loans, the central bank would charge the scheduled banks 1 per cent interest and the banks would be allowed to charge the exporters up to 2 per cent.

In November last year, the central bank reduced the interest rate on loans from the EDF following demand from the exporters in the context of a fall in export earnings in the first four months of the current fiscal year.

As per the revised rate, the banks were allowed to charge the exporters maximum six-month USD LIBOR (London Interbank Offered Rate) including another 1.5 per cent for loans from the EDF.

The six month LIBOR rate was 2.65 per cent in January last year. The rate, however, dropped to 1.23 per cent on Monday.

If the LIBOR rate was taken into consideration, the applicable interest on exporters on loans from the EDF was 2.73 per cent before the revision.

The BB introduced the EDF in 1988 with a size of $30 million, which has gradually increased.

Before the enhancement of EDF size on Tuesday, the BB had increased the size of EDF to $3.5 billion last year from $3 billion.

Banks can borrow funds in US dollars from the EDF against their foreign currency loans to manufacturer-exporters for input procurements.

For improving competitiveness of the country’s exporters, the central bank has allowed the devaluation of the taka against the US dollar with the greenback increasing to Tk 84.95 on Tuesday from Tk 84.5 on October 1 this year.

In a separate circular, the BB said that the banks would be allowed to keep their authorised dealer or other branches open for an extended one hour till 2:00pm if the banks found it necessary.

Such extended banking facility would be applicable only to important purposes including emergency foreign transactions, the BB circular said.

The central bank has instructed banks to give banking services on a limited scale from 10:00am to 1:00pm during the holidays announced by the government to combat the spread of coronavirus in the country.

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