EDF loans get costlier as interest rate from now to be based on SOFR

Borrowing from the Export Development Fund (EDF) is likely to become costlier for exporters as the Bangladesh Bank has asked banks to base interest rates on dollar loans on the Secured Overnight Financing Rate (SOFR), aligning with international financial standards.

The new directive from the central bank, which came through a circular issued today (2 September), stated that authorised dealer banks will be able to borrow from the EDF at SOFR plus 0.5% interest per annum and will be able to collect SOFR plus 1.50% interest from exporters at the customer level.

The SOFR rate is published by the Federal Reserve Bank of New York at 8am local time, every business day. Yesterday, the SOFR stood at 5.33%, according to the Federal Reserve Bank of New York. 

Previously, the Bangladesh Bank would set the benchmark for EDF loans interest rate. 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 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.

With this shift, the interest rate on EDF loans will now fluctuate with the market which will likely impact export-oriented businesses, making it crucial for them to carefully manage their borrowing strategies