EDF loans get costlier as BB hikes interest rates

Business Eye Report

Interest rate on dollar loans from the Export Development Fund (EDF) is set to increase as the central bank has ordered banks to follow international standards on fixing interest on the basis of Secured Overnight Financing Rate (SOFR).
Previously, the central bank would set the benchmark for fixing the interest rate on EDF loans.
From now on, this interest rate will be determined on the basis of SOFR, according to a Bangladesh Bank circular issued yesterday.
This method of setting interest rates has been adopted in line with global financial market trends. Every business day, the Federal Reserve Bank of New York publishes the SOFR at 8:00am local time.
The SOFR was 5.33% today, according to data from the Federal Reserve Bank of New York.
According to the BB circular, authorised dealer banks will be able to borrow from the EDF at SOFR plus 0.5% interest per annum. Banks will be able to collect SOFR plus 1.50% interest from exporters at the customer level.
The interest rate on EDF loans has practically increased as compared to earlier as the interest rate has become market based.
The central bank used to collect 3% interest from the authorised dealer banks for the money disbursed from the EDF. Dealer banks used to provide loans to exporters in US dollars, charging 4.50% interest.
The interest rate of dollar loans from the EDF has so far been fixed by the Bangladesh Bank. But since the SOFR changes every working day of the week, the rate will no longer be fixed.
The size of EDF, which aims to boost exports, was once raised to $7 billion. But later the size of this fund was limited amid the severe dollar-crisis. Currently, the size of EDF stands at $2.5 billion at the end of August.