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Business News/ Industry / IMF sets 0.05% floor on interest rate on special drawing right
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IMF sets 0.05% floor on interest rate on special drawing right

The board also approved changing the rounding convention for calculating the SDR rate to three decimal points from two

IMF’s executive board modified rules on Friday to make the change. Photo: BloombergPremium
IMF’s executive board modified rules on Friday to make the change. Photo: Bloomberg

Washington: The International Monetary Fund (IMF) is setting a 0.05% floor on the interest rate used to determine borrowing costs for some of its loans.

The executive board modified rules on Friday to make the change, according to a statement in Washington.

The IMF’s Special Drawing Right, based on a basket of the dollar, yen, euro and pound, is the fund’s unit of account that serves as a supplemental reserve asset and was designed to improve global liquidity.

The SDR interest rate was quoted on the IMF website at 0.03% on Friday compared with 0.13% in April and more than 3% in August 2008, before central banks slashed borrowing costs to zero to boost growth in the aftermath of the financial crisis.

The rate will be 0.05% on 27 October, the IMF said.

The board also approved changing the rounding convention for calculating the SDR rate to three decimal points from two, the statement said.

The SDR interest rate is used to calculate interest charged to member nations for non-concessional loans and SDR allocations, and the rate paid to members for SDR holdings. It is calculated from a weighted average of the short-term money market rates of the SDR basket currencies.

A floor will prevent the SDR rate from going negative, in the event that money market interest rates on some of the currencies in the underlying basket themselves go negative, an IMF official told reporters on condition of anonymity. The fund has no legal basis for charging a negative rate on SDRs. Bloomberg

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Published: 25 Oct 2014, 11:12 AM IST
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