The Bangladesh Bank has once again raised the interest rate on dollar loans from the Export Development Fund (EDF) for export-oriented apparel manufacturers, to put a leash on depleting forex reserves.
Exporters term the step ill-timed as the Bangladesh Bank Tuesday hiked the rate by 1 percentage point to 4% on the US dollar from the EDF.
The country's foreign-exchange reserves are now below $35 billion if calculated with the EDF.
Earlier in July, the central bank raised the interest rate on the loans made from the EDF by 50%.
Now the central bank will charge 2.5% per annum and banks will charge 4% on the loans extended to banks from the EDF.
The EDF is a special credit window created by the central bank to provide short-term finance in foreign currency for the import of raw materials by opening LC at sight by the export-oriented garment industries.
A circular raising the rate reads: foreign exchange Circular No. 17, dated July 20, 2022, in terms of which interest on EDF loans to Authorized Dealers (ADs) was charged by Bangladesh Bank at 1.50% with the ADs charging 3% pa on their USD loan disbursements to manufacturer-exporters.
The new rate is effective for disbursements from November 13, 2022.
In the meantime, clothing exporters were dismayed over the decision as they feel this will make the production cost higher.
However, there is a debate over local uses of the EDF which actually is a part of foreign-exchange reserves.
The International Monetary Fund (IMF) argues that this amount should be deducted from the reserve accounting when the central bank uses it for its export boost.
The fund size is now $7 billion.
