EDF loan gets costlier after new interest rate calculations

Exporters will face higher costs when getting loans from the Export Development Fund (EDF), as a new interest rate calculation method has been introduced for loans in US dollars.

The Bangladesh Bank issued a letter yesterday to the managing directors and chief executives of all banks to calculate the interest rate on EDF loans based on the Secured Overnight Financing Rate (SOFR), a method used by the Federal Reserve Bank of New York.

As per the central bank's directives, authorised dealer banks can now take loans from the EDF by adding a 0.5 percent annual interest to the SOFR rate. 

So, banks will charge manufacturers or exporters an additional 1.50 percent annual interest over the SOFR rate when lending in dollars.

The Federal Reserve Bank of New York publishes the SOFR rate at 8 am local time every business day. As of Tuesday, the SOFR rate was 5.33 percent, according to the Federal Reserve Bank of New York.

Previously, Bangladesh Bank charged authorised dealer banks a 3 percent interest rate for EDF funds, and the dealer banks lent these funds at a 4.50 percent interest rate.

The central bank pointed out that this new method of determining the interest rate for EDF loans has been adopted to align with global financial market trends.