Bangladesh Bank tightens import to save forex reserve

Following the current volatile economic situation, the Bangladesh Bank has instructed the scheduled banks to keep the margin of Letter of Credit (LC) at a minimum of 50% which is double the previous margin set only one month ago.

In the case of motorcar (sedans, SUVs, etc), electrical and electronics items used as home appliances, the margin has been set at 75%, according to a circular issued by the Banking Regulation and Policy department of the central bank on Tuesday.

However, essential products, including baby food, food products, fuel, and health ministry approved lifesaving drugs and medical equipment, capital equipment and raw material for productive local industry and export-oriented industry, agricultural products, essential products to be used for government priority projects, have been excluded from the minimum margin.

According to the circular, the LC margins have been increased to keep the country's currency and debt management more integrated as Covid-19 and wars have destabilised the global economy.

Before the latest fixing of the margin on 11 April, the margin rate was determined based on the banker-customer relationship. However, over the last few days, the demand for dollars in the country has increased due to various reasons, including an increase in import growth compared to export growth, negative growth in remittances, and an increase in commodity prices in the world market.

So the central bank is forced to sell a significant amount of dollars in the market. Due to these reasons, the foreign exchange reserves have been strained. For these reasons, the Bangladesh Bank has fixed a new LC margin to curb imports.