The Bangladesh Bank on Monday made loans in dollars from the Export Development Fund more expensive by tying the interest rate to the secured overnight financing rate (SOFR), which is significantly higher than the current rate for EDF loans.
In a circular issued to banks鈥� managing directors, the central bank announced that the new interest rate structure would come into immediate effect.
Authorised dealer banks can now borrow from the EDF by adding an annual interest margin of 0.5 per cent on top of the SOFR rate.
These banks can then charge manufacturers or exporters up to 1.50 per cent above the SOFR rate.
On Monday, the SOFR rate was 5.33 per cent, meaning that exporters will now face an interest rate of 6.83 per cent on EDF loans compared with the previous rate of 4.50 per cent.
Previously, the Bangladesh Bank charged a fixed 3-per cent interest rate to dealer banks for EDF funds, which the banks would lend to manufacturers and exporters at a 4.50-per cent rate.
However, as the SOFR rate fluctuates daily, the interest rate on EDF loans will no longer be set.
The Bangladesh Bank and the dealer banks will now determine the rate by adding a margin over the current SOFR rate, making EDF loans more market-based and likely more expensive.
Bangladesh Bank officials said that this shift aligned the EDF鈥檚 interest rates with global financial market trends.
The SOFR, which indicates the interest rate on loans, is published daily by the New York Federal Reserve at 8:00am local time.
Following the global phase-out of LIBOR, Bangladesh has been using SOFR since July 2023.
The EDF was initially expanded to $7 billion to support export growth.
However, due to a severe dollar shortage, the fund鈥檚 size was later reduced, and in April 2023, the Bangladesh Bank also lowered the borrowing limit from the EDF.