Bangladesh raises interest rate on short-term foreign currency loans

With the hike of 50 basis points, the maximum interest rate for foreign currency investments will be 8.76 percent

Banks can now charge a maximum interest rate of Secured Overnight Financing Rate (SOFR) plus 4 percent on short-term trade financing in foreign currency after Bangladesh Bank raised the rate by 50 basis points.

This will lead to higher expenses for businesses seeking short-term foreign currency loans.

The central bank sent a circular to the chief executive officers of all banks on Thursday, stating that the annual interest rate has been set at four percent, considering global market conditions and interest rates.

Bangladesh Bank increased the rate from 3.5 percent in line with international benchmarks like Euro Interbank Offered Rate or EURIBOR and Sterling Overnight Index Average or SONIA.

In September 2022, the central bank raised the interest rate on foreign currency loans to 3.5 percent, up by 50 basis points, nearly one and a half months after lowering it to help exporters, particularly those from the garment sector, borrow money from banks.

On Aug 16, the rate was reduced by 50 basis points, setting it at a maximum of 3 percent.

Bangladesh Bank will stick to its strict monetary policy until inflation drops to 6 percent, according to Governor Abdur Rouf Talukder.

On Thursday, Secured Overnight Financing Rate or SOFR was 4.76 percent. If the rate remains the same, the banks will be able to charge a maximum of 8.76 percent interest on short-term foreign currency investment.

Bangladesh Bank said the EURIBOR and SONIA will be the reference rates for loans in euros and pounds respectively.