BB raises EDF loan interest rate to 3%

The Bangladesh Bank has increased the Export Development Fund (EDF) loan interest rate to 3 per cent from 2 per cent until further notice.

Besides, authorised dealer banks will collect funds from the EDF at 1.5 per cent interest from the central bank, which earlier was 1 per cent, said the Foreign Exchange Policy Department in a circular on Wednesday.

Exporters believe the move is aimed at discouraging borrowing from the EDF. They say it may reduce the use of foreign currencies but they will be under pressure.

Executive President of Bangladesh Knitwear Manufacturers and Exporters Association Mohammad Hatem told The Business Post production cost had already gone up due to the increase in import expenditures, fuel prices, and tax at source.

He said many factories might face closure because of the increased interest rate.

Spokesperson for the Bangladesh Bank Serajul Islam said other interest rates also rise when the policy interest rate goes up.

“It is true that the Bangladesh Bank now wants to save dollars. Increasing interest rates will reduce the demand for loans and dollars will thus be saved.”

A member of Bangladesh Textile Mills Association or Bangladesh Garment Manufacturers and Exporters Association can borrow $30 million from the EDF. The limit was $25 million earlier, which was increased during the coronavirus pandemic.

The deadline for disbursing EDF loans was June 30 this year, but the central bank extended it till December 31.

Exporters can borrow in foreign currency from the EDF to buy raw materials and components for export products. The fund is aimed at facilitating export growth.

The demand for borrowing from the fund increased during the pandemic to fight the impacts of the global health crisis. In August 2020, the Bangladesh Bank relaxed many conditions of borrowing from the EDF.

The fund size was increased to $7 billion from $6 billion in March this year to meet the growing demand among exporters.

The EDF was launched in 1989 to support the export sector. Prime Minister Sheikh Hasina ordered officials in 2020 to expand the fund while announcing Covid-19 incentive packages considering the pandemic impacts.

On April 7 in 2020, the size of the fund was increased from $3.5 billion to $5 billion. Later, it was increased to $6 billion while the interest rate was cut to 2 per cent.

In another circular on Wednesday, the central bank extended the usance period to 360 days from 180 days for importing industrial raw materials, including agricultural implements and chemical fertilisers, on suppliers’ or buyers’ credit.

It said the extension would be effective till December 31.