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LC opening and settlement rates have come down trade

LC opening and settlement rates have come down trade
LC opening and settlement rates have come down trade

The central bank’s initiative to reduce volatility in the dollar market has been of some use. Various initiatives to reduce imports of luxury goods and cutting of less essential projects have reduced the opening and settlement of import LCs (Letters of Credit). LC openings fell by 10 percent in August compared to July this year. During the same period, LC settlement fell by around 13 percent. This information is known from the sources of Bangladesh Bank.

In addition to 100% cash deposit for opening LCs on luxury goods, the government increased the regulatory duty on the import of these goods. Besides, the central bank also takes a strict stance on the import of unnecessary products. Following such initiatives, import costs started to decline consistently in the wake of a large devaluation of the rupee against the dollar.

According to the data of Bangladesh Bank, the amount of LC opening and settlement started decreasing from July this year. Last June, LC opening was $837.75 million, which fell to $622.36 million in July. LC openings fell further to $5.6495 billion in August. Due to this, the amount of LC opening decreased by 2.72 billion 80 million dollars in a span of two months.

However, the rate at which LC openings have decreased, the amount of LC settlements has not decreased at the same rate. Last June, the LC was settled for 779 million 81 million dollars. In the following month, July, its amount decreased to 742 million 50 million dollars. And in August, the amount of LC settlement further decreased to 647.38 million dollars. In other words, the amount of LC settlement has decreased by 132 million 43 million dollars in the span of two months.

However, even if the import decreases, the dollar crisis does not end. In this situation, Bangladesh Bank has increased dollar sales to overcome the market crisis. The central bank has sold nearly two and a half billion dollars in the last two months.

Meanwhile, if the bank is fairly stable, the dollar rate has increased again in the open market.

Bangladesh Bank fixed the dollar rate at Tk 95, but recently some banks kept the dollar rate at Tk 104 to Tk 108 for imports. The export bill is now around Rs.104. And the rate of remittances from expatriates has also decreased slightly.

Officials of the central bank said that the central bank has continued to sell dollars from foreign exchange reserves to banks, so that it can be used to settle urgent government imports. Besides, LC payments are gradually decreasing due to imposition of maximum LC margin on other products. LC openings are currently down and are expected to further decline in the future.

According to the report of the central bank, LC settlement was 685 crores in January this year, 655 crores in February, 767 crores in March, 693 crores in April and 725 crores in May.

Bangladesh ran into a record trade deficit in the 2021-22 fiscal year due to a post-Covid increase in imports compared to the country’s exports and abnormal prices of all commodities, including energy, in the global market. At the end of the outgoing 2021-22 fiscal year, the trade deficit stood at a record 3,325 million dollars. At the same time, the current account deficit also exceeded $1,850 million.

According to the data of Bangladesh Bank, the banks suffering from shortage of dollars purchased 762 million dollars from the central bank for 66 thousand 650 million rupees in the financial year 2021-22. Banks have been facing dollar crisis since August last year.

The article is in Bengali

Tags: opening settlement rates trade

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