In a significant move to protect businesses from volatile global borrowing costs, Bangladesh Bank (BB) has formally approved the use of Forward Rate Agreements (FRAs), enabling importers to lock in future interest rates on foreign currency import loans.
Under a notification issued on Thursday, Authorised Dealer (AD) banks are now permitted to enter into FRAs with borrowers undertaking foreign currency import financing. The facility will apply specifically to usance imports financed through supplier's credit and buyer's credit arrangements.
Central bank officials said the initiative is designed to insulate importers from fluctuations in international benchmark interest rates, particularly the Secured Overnight Financing Rate (SOFR), which underpins most US dollar-denominated lending worldwide.
An FRA allows borrowers to fix an interest rate in advance for a specified future period, providing certainty over financing costs and reducing exposure to abrupt shifts in global monetary conditions.
Under usance import arrangements, payments for imported goods are made after an agreed credit period rather than immediately upon shipment. In such cases, importers often rely on foreign loans priced at a margin above SOFR, leaving them vulnerable to rising international interest rates.
For example, an importer borrowing for six months at SOFR plus three percentage points would face higher financing costs if the benchmark rate climbed during the loan period. The newly introduced FRA mechanism is intended to neutralise precisely this type of risk.
Bangladesh Bank has made it clear that the instruments must be used exclusively for hedging genuine commercial exposures and must be backed by underlying import transactions. Speculative activities and unhedged positions have been expressly prohibited.
Under the framework, settlement will be based on the difference between the pre-agreed contractual rate and the prevailing benchmark rate at the relevant future date, allowing importers to manage interest-rate uncertainty with greater confidence.
The central bank has also imposed stringent compliance requirements, including adherence to internationally recognised contractual standards, daily mark-to-market valuations, comprehensive internal risk controls and mandatory preservation of all supporting documentation. Any early termination of contracts must be settled at prevailing market rates.
To prevent banks from assuming excessive market exposure, Bangladesh Bank has directed lenders to fully offset their positions through back-to-back transactions executed on the same day.
The regulator has further capped banks' pricing margins at a maximum of 10 basis points and stipulated that aggregate FRA exposure must remain within 25 per cent of a bank's average monthly foreign currency inflows over the previous 12 months.
