KARACHI, July 30: Exporters will get export finance from banks at three per cent in August as the State Bank has cut refinance rate by half a percentage point to 1.5 per cent.

The State Bank announced on Wednesday that it would give banks export refinance at 1.5 per cent in August, adding that the banks would be free to add a 1.5-per cent spread over it while pricing export finances. Thus the eligible exporters would be getting export loans from banks at three per cent in August. Till July they got export loans at 3.5 per cent as the SBP refinance rate stood at two per cent.

Bankers say what has enabled the central bank to make a half percentage point cut in its export refinance rate was a crucial 32 basis points cut in the cut-off of six-month treasury bills yield in the last auction held this month. The yield on the T- bills serves as a benchmark for the export refinance rate under a formula forwarded by the IMF and accepted by the SBP as part of its strategy to eliminate interest rate subsidy from the exports.

The SBP announcement said the financing facility under part B of the export finance scheme for financing locally manufactured machinery shall also attract similar mark-up structure meaning that three per cent interest would be charged on it in August.

Export finance rate has fallen from eight per cent in August 2002 to three per cent applicable in August 2003 primarily because the SBP has been following an expansionary monetary policy as a result of which overall interest rates have been on the decline.