Bangladesh Bank lowers interest rate on short-term investment in foreign currency

It will ease the borrowing of foreign currency from banks for garment exporters

The Bangladesh Bank has lowered the interest rate for short-term investment in foreign currency by 50 basis points, allowing banks to offer a maximum interest rate of LIBOR plus 3 percent instead of 3.5 percent.

The national bank sent out instructions to chief executives of all banks on Tuesday.

The decision will allow the exporters, those from the garment sector in particular, to borrow money from banks at lower interest rates.

The Bangladesh Bank circular read: “Given the global market trends, it has been decided to set all-in-cost ceiling per annum with mark-up of 3 percent over benchmark rate applicable to the relevant currency against short term permissible trade finance.

“Authorised dealers may continue to arrange finance with LIBOR as benchmark rate [as long as it is in effect].”

The central bank mentioned that the interest rate of the currency’s source country will be considered as the benchmark rate in this case.

Bangladesh Bank officials said the London Inter-Bank Offered Rate or LIBOR, England’s inter-bank average interest rate for three months, can be considered for short-term trade finance in the case of dollar loans.

On Aug 16, the one-year LIBOR rate stood at 3.96 percent, so banks can issue a 7 percent interest rate against investing in foreign currency.

The Bangladesh Bank said Euro Interbank Offered Rate or EURIBOR and Sterling Overnight Index Average or SONIA have to be taken as reference rates for euros and pounds respectively.

The central bank had earlier set an annual interest rate ceiling for foreign deposits along with benchmark reference rate in the relevant currency.