Lower import gives comfort to money market

The growth for import spending in fiscal year 2018-19 (FY19) saw a sharp decline, easing liquidity pressure in the money market.

This also relieved the central bank – Bangladesh Bank (BB) – of intervening into the foreign exchange market time and again to sell dollars.

Also, this helped commercial banks to get some relief from purchasing dollars ever so often to meet the growing need for the greenback during import.

In FY19, the import expenditure growth plunged to 4.35 percent, marking over 82 percent fall from that in the previous fiscal year.

During this time, the government’s import of two heavy items – food grain and capital machinery particularly for mega projects -- reduced to normal, said the BB in its monetary policy for FY20.

Capital machinery import registered a negative 9.43 percent growth in FY19, compared to 6.24 percent in the previous fiscal year.

Food and grain import also dipped to negative 51.75 percent growth from 161.74 percent during the same period.

High import growth in FY18 created stress in the interbank foreign exchange market, requiring the central bank to sell dollars to banks, said the BB statement.

Banks are now in a comfortable zone with $1 billion in net balance. This balance dropped below $400 million at the beginning of this year, the central bank data show.

Dollar selling to banks further worsened their liquidity position, the statement said.

The statement added that the reduction in imports has eased both foreign exchange and local money markets, with banks no longer asking for day-to-day central bank intervention.

The total import in terms of letter of credit settlement stood at $54 billion in the last fiscal year, compared to $51.76 billion in FY18, according to BB data.

Although absolute import volume increased, the growth figure during this period was low on a higher base of import.

As imports slowed down, the private sector credit growth fell to 11.30 percent in June, the lowest in the last five years.

It also narrowed the trade deficit, giving relief to the central bank of intervening into the foreign exchange market by injecting dollars.

The trade deficit shrank more than 14 percent during this fiscal year, the BB data shows. The central bank projected trade deficit in FY20 will further come down by nearly 1.5 percent.

Moreover, the comfort in the dollar market also improved the position of the current account balance to negative $5.28 billion in FY19 from negative $8.8 billion in FY18.

In the latest monetary policy, the central bank expects the current account balance to become negative $4.57 billion in FY20.

Meanwhile, the fall in the growth of both import and private sector credit improved the liquidity position in the banking system too.

The total excess in the banks’ liquidity stood at Tk85,000 crore in June in FY19, which dipped to below Tk70,000 crore in FY18.

Both local money and foreign exchange markets remain in a comfortable state, which is reflected in improving excess liquidity, said BB Governor Fazle Kabir.

This has happened because import has been moderated with rising export and remittance inflow, he said recently at an event on unveiling monetary policy.

In FY19, export earnings registered an almost double increase in growth, although the remittance inflow was nearly half compared to that in FY18.