Dollar for LC settlement reaches new high at Tk110

Imran Khan · Feb 21, 2023

Dollar for LC settlement reaches new high at Tk110

The greenback price for import payments has increased by Tk12 over the past 16 working days

The dollar rate for LC Settlement reached a new high of Tk110 on Thursday (4 August).
Even the greenback price for import payments is now higher than that of the kerb market, which has seen a stable price of Tk108 for the last two days thanks to the ongoing central bank raids.
The dollar price hit Tk109 on Wednesday, breaking the previous records.

The dollar rate for LC settlement kept rising as the Bangladesh Bank is not supplying dollars for private sector imports amid the depleting foreign exchange reserves.
Some state banks are getting dollars from the central bank at the interbank exchange rate only for government imports and the imports of essential goods. Yet, the supply is not enough against the banks' requirements.

For instance, Agrani Bank on Thursday received only $15 million from the Bangladesh Bank – against a requisition of $100 million.
Insiders said importers had not been charged so high for the currency earlier.

On 13 July, after the Eid-ul-Azha holidays, the banks charged importers Tk98 for a dollar, which jumped by Tk4 to Tk102 on 21 July – within the span of just six working days.

The greenback price also kept rising in the next two days and later, until the beginning of August, it was stable at Tk105. The price started rising again over the last three days.
The hike in dollar price for LC settlement was Tk12 over the last 16 working days – from the bank opening day after Eid to 4 August.

Apart from the ongoing dollar crisis, the sales of dollars by exchange houses at higher prices contributed to the dollar rate hike for LC settlement.
For now, the maximum dollar price for import payments depends on the rates at which banks can collect remittance dollars for exchange houses abroad.
On 13 July, the exchange houses sold remittance dollars at the highest Tk100, which jumped to Tk111-112 on Thursday (4 August).
However, banks bought a little amount of dollars at the high rates. Many also could manage dollars at Tk106-108.
"Under normal circumstances, there are several sources of dollar collection, including purchasing the currency from other banks. However, due to the ongoing crisis, most banks do not have surplus dollars. As a result, we have to rely more on exchange houses [abroad] to get dollars," a private bank treasury official, who wished to remain unnamed, told the Business Standard.
"With the dollar crisis for import payments, most banks are competing to buy dollars from the exchange houses."
On Thursday, state-run banks received dollars from the central bank at the rate of Tk94.75 or something higher, which is why they could make import payments at the rates, while private sector banks charged importers Tk106-110 for a dollar depending on bank-client relations.
The overall dollar rate for LC settlement is increasing as private banks need to collect dollars from the exchange houses abroad in case of large payments.
In such a situation, the exporters are also asking for higher prices in case of encashing their export payments. On 13 July, exporters got the highest dollar rate of Tk95, which increased to Tk102 on Thursday (4 August).
Ahsan H Mansur, executive director of the Policy Research Institute, thinks the volume of imports will decrease keeping pace with the hike of dollar rates in LC payments.
"We are not using monetary policy properly. The government has made its biggest mistake by fixing interest rates which also contributed to the dollar price hike," he told The Business Standard.
"If the interest rate is increased, the money will be attractive. But, raising interest rates will also increase our inflation."
The economist said the government has now left the exchange rate on the market. "But, it was not done willingly, the central bank did that when it was forced to do that. This situation [hike in dollar price] would not have happened today if it was left to the market earlier," he added.
Meanwhile, the kerb market traders are now in a fear of getting penalised as the central bank and law enforcement agencies keep on their drives against dollar market manipulation, which contributed to a stable cash dollar price of TK108 for the last two days.