The central bank raised interest rates against loans sanctioned from the export development fund (EDF) by 1.5 percentage points from January 1.

Businesses said the move will reduce their competitiveness and fuel production costs.

“Charging a higher interest rate at this moment is not acceptable. I have already conveyed our concerns to the government,” said Abdus Salam Murshedy, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

Halim Khan, secretary general of Bangladesh Bicycle Manufacturers and Exporters Association, pointed out that the Bangladesh Bank (BB) move contradicts the basic objective of the EDF. “It will affect the export-oriented industries."

However, a senior BB official said the hike in such lending rate followed a sharp decline in the LIBOR (London inter-bank offered rate) in recent months.

The BB has set the new interest rates at LIBOR plus 2.5 percent from the previous LIBOR plus 1 percent. Now BB's stake will stand at LIBOR plus 1 percent from the previous LIBOR only. Commercial banks will get 1.5 percent from an earlier 1 percent.

BB doubled EDF to $300 million last month to help exporters sustain the global recession fallout. In October 2007, the fund was raised to $150 million from $100 million.

Murshedy said exporters have long been demanding incentives from the government to survive the global financial shocks. Prices of export products sharply dropped in the past year.

Under this global perspective, EDF is a moral boost to us, he said.

“Now we have to spend 1.5 percent more for our products,” the BGMEA chief said.

The BB official said following the hike in EDF lending rate, it now stands at only 0.4 percent.

Exporters however thanked BB for raising the single borrower credit limit from the fund to $10 million from $1.5 million.

EDF came into being in 1989 to facilitate access to finance in foreign exchange for input procurements by manufacturers and exporters. Authorised dealer banks can borrow US dollar funds from the EDF against their foreign currency loans to the parties.

Now, a total of 29 commercial banks avail of the EDF facility provided by the BB. Many exporters borrow from this low-cost fund.

BB officials said so far only $100 million has been utilised from the fund.

Source : The Daily Star