Rise in LC settlements creates fresh pressure on forex market

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FE Report
Increase in the settlements of letters of credit (LC) against imports especially for Ramadan period has created a fresh pressure on the country's inter-bank foreign exchange market.
The use of third currency has simultaneously increased with the US dollar in the inter-bank foreign exchange market to settle a large amount of import bills recently, market sources said.
Under the third currency deal, some commercial banks are purchasing Euro and Great Britain Pound (GBP) from other banks and then converting those into US dollars for settlement of their import payments.
"The exchange rate of US dollar is going up due to third currency deals," a senior treasury official of a private commercial bank told the FE Tuesday.
He also said the rate of US dollar stood at Tk 68.90 when converted from third currency deals while the greenback was traded at Tk 68.71 in the inter-bank foreign exchange market.
Sources, however, said both settlement and opening of LCs have increased significantly during the second week of the current month against the corresponding period of the previous year.
A total of US$384.83 million import bills was settled in the second week of this month compared to $277.86 million of the first week of the same month, the Bangladesh Bank data showed.
The overall trend of opening of fresh LCs against imports increased by 20.10 per cent during first fortnight of September' 07 against the corresponding period of the previous year.
The import LCs worth US$ 787.50 million were opened during the period as against $665.67 million of the corresponding period of the last year, according to the central bank statistics, released Tuesday.
The opening of import LCs of some essential items including rice, wheat, milk food, edible oils, pulses and onion also rose to meet the growing local demand of the essentials.
During the period, the opening of LCs for rice increased by $17.17 million in terms of value, for wheat by $28.54 million, for milk food by $4.37 million, for edible oils by $19.82 million, for pulses by $14.55 million and for onion by $3.94 million.
"We are hopeful that the rising trend of opening of LCs against imports will continue in the next weeks to meet the domestic demands of some essential commodities," the commercial bank official noted.
On March 12 last, the BB ordered the commercial banks to promote businesses, particularly small and medium ones, for opening fresh LCs against imports to ensure sufficient supply of commodities in the markets.
The central bank also directed the banks to be flexible while opening fresh LCs for import of essential commodities.