Due to the lack of greenback dollars, the central bank is still using its dollar-selling strategy to maintain market stability. On the other hand, since April, they have been closely monitoring LC opening as a means of reducing imports.
As a result, despite the fact that it appears possible to reduce LC opening, Bangladesh Bank was unable to stop the trend of dwindling foreign exchange (Forex) reserves.
The point is if LC opportunities are severely declining, why is Bangladesh Bank setting record after record in terms of selling dollars?
According to economists and bankers, even if the number of LC openings declines, the dollar problem in the banks continues because the quantity of postponed LC does not.
Bangladesh Bank is constantly selling dollars to the banks to meet that demand.
Record dollar sales
According to the most recent data analysis by Bangladesh Bank, they sold a total of $13.65 billion in the 17 months between July 1, 2021 and November 24, 2022.
Between July 1 and November 24 of this year, several commercial banks purchased from Bangladesh Bank a total of $6.03 billion.
Additionally, through this activity, Bangladesh Bank has removed a significant sum of taka from the banking industry, which economists and bankers believe could be another factor contributing to the liquidity shortfall.
Data from the central bank show that Bangladesh Bank has been selling dollars to stabilize the exchange rate since the end of the previous fiscal year and that in FY22, they gave the banking industry a record infusion of $7.62 billion.
Earlier, Ahsan H Mansur, executive director of PRI told Dhaka Tribune: “Although Bangladesh Bank has very limited options to deal with the dollar crisis they have to keep in mind that, If the foreign exchange reserves get depleted more, the uncertainties faced by the economy will widen in the days ahead.”
“The opening of new LCs has decreased, but we'll get the results of this fall in December or January,” he added.
LC settlement
Due to the dollar crisis, Bangladesh Bank took various steps to reduce the speed of imports in April.
After six months in October, the impact of those activities has reduced the LC opening in the four months till October of the ongoing fiscal year 2022-23.
Data analysis shows that in October, as a single month it depleted drastically.
Importers opened letters of credit worth $24.26 billion from July to October, a 15.1% year-on-year (YoY) fall, in a sign that measures taken in tandem by the government and Bangladesh Bank has started to pay off.
In October alone, the decrease in LC opening was 38.33% to $4.74 billion, compared with the month last year, according to central bank data.
“Many of the LCs are deferred ones, which is raising the spending now,” said Selim RF Hussain, the chairman of the Association of Bankers, Bangladesh and managing director of Brac Bank.
“This trend may continue for two to three more months,” he added.
Meanwhile, $1.7 billion LC has been opened till November 16.
If this trend continues, the bankers believe that the low LC opening will continue this month as well.
