The central bank begins monitoring LCs daily to bar unnecessary imports in a major bid to ease pressure of import-payment obligations and thus buttress Bangladesh's falling reserves, officials say.
Under the latest regulatory move-incidentally amid declining foreign-exchange reserves and depreciation of the local currency--the Bangladesh Bank (BB) started monitoring letters of credit worth US$5.0 million and above initially from Wednesday using its dashboard to discourage 'unnecessary' imports.
"We've started such monitoring of the LCs through dashboard to know about the necessity of the imported goods along with foreign-exchange availability of the banks concerned," a top central banker told the FE about the latest belt-tightening measure, launched hot on the heels of change of guard at the central bank of Bangladesh.
Top finance-bureaucrat Abdur Rouf Talukder took over as Bangladesh Bank Governor Tuesday with two cardinal goals among his priorities: taming wayward inflation that afflicts people with price spiral and cooling the overheated foreign-exchange market.
Earlier on February12, 2013, the central bank launched an electronic system, generally known as 'dashboard', for monitoring all kinds of foreign-exchange transactions aiming to check fraud and forgery in the country's banking sector.
The dashboard provides information on different modes of foreign-exchange transactions, including on summary of exports, imports and inland back-to-back LCs separately.
"It will help manage volatility on the foreign-exchange market through decreasing import-payment pressure on the economy," the central banker explains.
Talking to the FE, Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank Limited, said both importers as well as banks concerned would be more cautious about fresh imports following the latest BB screening measure.
"It may help reduce gap between outflow and inflow of the foreign exchange in the market," the senior banker notes.
Dr Shah Md. Ahsan Habib, professor at the Bangladesh Institute of Bank Management (BIBM), hails it as a good initiative to discourage unnecessary imports.
Superfluous exports and imports are also often suspected by economists as means of funds flight through under-invoicing and over-invoicing.
The BB has already taken different measures like tightening the LC- margin rules for all imports, save some essentials, on the same grounds.
Earlier on July 04, the central bank imposed a prohibitive 75-percent cash LC margin at the minimum on all non-essential items instead of 50 per cent earlier.
Besides, such LC margin for high-end motor vehicles like SUV and Sedan cars along with electrical and electronic products which are being used as home appliances has been jacked up to 100 per cent from 75 per cent.
However, all scheduled banks have been instructed to refrain from providing loans to importers to meet the margins.
The BB's regulatory measures came against the backdrop of rising trend in the current-account deficit alongside depreciating mode of the local currency against the US dollar recently mainly due to higher import-payment pressure on the economy.
The Bangladesh Taka (BDT) further depreciated significantly against the US dollar mainly due to higher demand for the greenback for settling import payments.
The local currency lost its value by 50 paisa on the inter-bank foreign-exchange (forex) market on Wednesday, according to market operators.
The US currency was quoted at Tk 93.95 each on the day against Tk 93.45 on the previous working day. It was Tk 92.95 on June 27.
In the meantime, the local currency has lost its value by Tk 8.15 or 9.50 per cent since January 2022. The dollar traded at Tk 85.80 on January 08 last.
The same day, the exchange rate of the taka also depreciated similarly against the greenback at customers' level for settling import payments.
The US dollar was quoted at a maximum of Tk 94.00 each for the sale of bills for collection, generally known as BC, on the day against Tk 93.50 of the previous level.
On the other hand, the banks also quoted the dollar at maximum at Tk 93.00 on the day to remitters as well as realised export proceeds or telegraphic transfer (TT) clean of their funds against Tk 92.50 of the previous working day.
Actually, the local currency is maintaining a depreciating trend recently- mainly due to higher outflow of foreign exchange - following a hefty growth in import payments amid global price rises, compared to the inflow in the last few months.
Meanwhile, Bangladesh's import expenses have ballooned on account of a fresh hike in prices of essential commodities, including fuel oils, on the global market mainly due to the ongoing Russia-Ukraine war, according to the officials.
The settlement of letters of credit (LCs), generally known as actual imports, in terms of value, rose by 47.59 per cent to $75.13 billion during the July-May period of the outgoing fiscal year (FY) 2021-22, from $50.91 billion in the same period of the previous fiscal, according to latest BB statistics.
On the other hand, the opening of LCs, generally known as import orders, grew by 43.10 per cent to $84.85 billion during the period under review from $59.30 billion in the same period of FY '21.
However, the central bank continues providing its foreign-currency support to the scheduled banks in a bigger way for managing forex- market volatility.
It sold $97 million directly to three banks on Wednesday to help them meet the growing demand for the greenback.
On Tuesday, the central bank sold $134 million to some banks on the same ground.
The BB has so far injected $440 million from the reserves directly into commercial banks - as liquidity support for settling their import-payment obligations-in FY23.
In FY'22, the central bank sold $7.62 billion from the reserves to the banks for the same purposes.
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