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 following that the export earnings fall in first four months (July-October) of the current fiscal year compared with that in the same period of last fiscal year.
As per a notice issued by the Bangladesh Bank, export manufacturers will now be able to borrow foreign currency loans at LIBOR (London Interbank Offered Rate) plus 1.5 percent, down from 2.5 percent previously.
LIBOR, which serves as a global benchmark for short-term interest rates, has been hovering between 1.90 percent to 1.92 percent for the last few days, meaning the cost of foreign currency loans will remain at about 3.42 percent.
The banking regulator also cut the interest rate for banks as they will be charged LIBOR plus 0.50 percent from the previous rate of LIBOR plus 1 percent.
The reduced rate will be applicable to the loans to be disbursed till June 30, 2020.
An increase in LIBOR in the international market was below 0.5 percent in the year 2015 and the yearly average LIBOR has increased to around 2.38 percent 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.
The latest central bank decision will encourage exporters as their production cost will decrease significantly, expected Bangladesh Bank. They hope the move by the central bank will have a positive impact on the decreasing trend of export earnings.
In the first four months of the fiscal year export receipts fell short of target by $14.33 billion by nearly 7 percent, according to data from the Export Promotion Bureau (EPB). The earnings in July-October of FY2020 fell by 6.82 percent to $12.72 billion from $13.65 billion in the same period of FY2019.
Furthermore, last month exports raked in $3.07 billion, down 17 percent year-on-year.
Exporters will have to pay back the foreign currency loan within six months from the date of receiving the fund. The repayment tenure can be extended by three months provided the application is satisfactory.
The EDF was launched in 2005 with an initial amount of $100 million; it was gradually increased to $3.50 billion. Exporters from six sectors can get loans from the EDF and the central bank can set a separate credit ceiling for them.
Member of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is allowed to get $25 million from the fund and member from Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) may get maximum $15 million.