The Bangladesh Bank has increased the Export Development Fund (EDF) loan interest rate from 3 percent to 4 percent in a bid to tackle the steady decline of foreign exchange reserves, by discouraging borrowers.

Authorised dealer (AD) banks will collect funds from the EDF at 2.5 percent interest from the central bank, which was 1.5 percent earlier, according to a circular issued by the regulator’s Foreign Exchange Policy Department on Tuesday.

The new interest rate will come into effect from November 13, it added.

On July 20, the Bangladesh Bank increased the EDF loan interest rate to 3 percent from 2 percent. Exporters can borrow in foreign currency from the EDF to buy raw materials and components for export products. The fund is aimed at facilitating export growth.

The fund size was increased to $7 billion from $6 billion in March this year to meet the growing demand among exporters.

The EDF was launched in 1989 to support the export sector. Prime Minister Sheikh Hasina ordered officials in 2020 to expand the fund while announcing Covid-19 incentive packages to tackle the pandemic impacts.

On April 7 of 2020, the fund size was increased from $3.5 billion to $5 billion. Later, it was increased to $6 billion while the interest rate was cut to 2 percent.