Not only exporters, importers too will benefit from market-driven exchange rate

All businesses are expected to benefit from market-driven exchange rate even if that entails a further devaluation of the taka against the dollar.
Market experts, economists and asset managers unanimously welcome the central bank's move to allow the currency to float freely by the third quarter to September this year.
The Bangladesh Bank will replace the existing multiple exchange rates by a unified rate by the time, and all international transactions will happen on the basis of the new exchange rate system.
The unified exchange rate regime is likely to gradually close the gap between foreign currency inflow through formal and informal channels and help replenish the foreign exchange reserves.
As the dollar supply will increase, many import-dependent companies, including power generation companies, which have been struggling to bring in much-needed raw materials, will be able to open letters of credit (L/Cs).
"The businesses will be benefited although their costs of production will increase due to higher import costs," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
Some companies would have liked to pay more to get necessary imports, as the businesses have been hit hard for a lack of raw materials.
Steel, cement and power companies could not reap any benefit when the prices of raw materials cooled off in the global market in recent months. The firms could not open letters of credit as banks were unable to supply dollars to finance imports.
The leading steel manufacturer, Bangladesh Steel Re-Rolling Mills (BSRM), managed to open one-third LCs compared to the demand, said Shekhar Ranjan Kar, head of finance and accounts of the BSRM Group.
Not only BSRM but also its competitors in the steel sector and even other import-reliant businesses have been facing similar constraints.
LC opening dropped 14 per cent year-on-year in July-December of FY23 and the LC settlement declined 9 per cent during the period, according to the data from the Bangladesh Bank.
To save dollars amid the government's austerity measures, the central bank increased overall LC margins and imposed advanced payment requirements for imports of non-essential and luxury goods. As a result, the production of goods has slowed down across the manufacturing industries.
The new exchange rate regime is expected to bring stability into the foreign exchange market.
The market volatility cost importers heavily.
When power generation companies opened letters of credit to import furnace oil, the dollar price was Tk 85 to Tk 86 but the companies had to settle the LCs at Tk 105 to Tk 115, said Yeasin Ahmed, company secretary of Shahjibazar Power Company.
At the moment, since the dollar is dearer banks barely agree to open LCs for raw material imports until they are offered an above-market exchange rate, said Syed Kamruzzaman, company secretary of Aramit Cement.
Currently, exporters are offered exchange rate of Tk 107 per dollar while remitters get Tk 108.50 a dollar plus 2.5 per cent incentive. The rate for importers is calculated based on the weighted average of the rates offered to remitters and exporters plus Tk 1.
The chief advisor to the board of Crown Cement, Masud Khan said many companies were compelled to purchase dollars at higher rates through underhand dealings to open L/Cs.
"The backlogs of L/C opening will decline following the availability of dollars," he added.
Meanwhile, the central bank on Tuesday directed all commercial banks to loosen their grip on the cash margin rate for opening LCs for import of 10 types of products.
The products include industrial and industry-related spare parts, textile raw materials, chemical and ancillary products, plastic products, UPS and IPS machineries.
The BB asked banks to fix the margin rate based on banker-customer relationships. Previously, importers had to pay 75 per cent LC margin on imports of the goods.
The central bank says the current exchange rate of the taka against the US dollar remains closely aligned with the market rate.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, however, said the dollar exchange rate may rise a bit after the adoption of the unified rate.
"But no one will hoard dollars", he said, as people will get proper rates, increasing access to the foreign currency.
Hence, small importers will also get dollars. Now they fail to get their hands on dollars due to the dominance of large companies.
The industries - small or big -- right now are more concerned about the lack of access to dollars than high exchange rates. Business cut down production for not having raw materials, leading to a drop in revenue and profit.
"The dollar supply is more important than the exchange rates to many companies. They will no longer face uncertainty over L/C settlement if dollars are available," said Asif Khan, chairman of EDGE Asset Management.
Mr Hussain, however, said the stability in the foreign exchange market depends on how efficiently the BB manages it.
"If it manages the rate through banks or the Bangladesh Foreign Exchange Dealers' Association, then it wouldn't really be a floating exchange rate."

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