LC settlement rate climbs to Tk123.55

The settlement rate for letters of credit (LCs) reached Tk123.55 per US dollar at several commercial banks yesterday, marking an increase of as much as Tk0.70 over the past 15-20 days. Several of the country's leading business groups settled their LCs at this rate, indicating that the dollar rate has been rising steadily over the past two weeks. A senior official at one of the country's largest business conglomerates told TBS that the dollar has appreciated by about Tk0.70 over the past 15 to 20 days, causing businesses to pay significantly more for every dollar than before. The business group estimated that settling a $2 million LC now costs about Tk14 lakh more than before, substantially increasing import costs and fueling inflation. A senior Bangladesh Bank official explained that a handful of commercial banks are driving up the dollar rate by purchasing dollars from exchange houses at higher rates, creating instability in the foreign exchange market. The official added that the dollar rate also rises when a bank purchases more dollars from exchange houses than it actually needs. Senior officials at several commercial banks acknowledged that a few banks are paying above-market prices for dollars, influencing the broader foreign exchange market. Bankers attributed the demand for dollars primarily to payments for government fuel imports, noting that the cost of settling those LCs has increased because global oil prices surged during the Iran conflict. They also noted that remittance inflows slowed considerably in June, falling short of the $3 billion received in each of the previous six months. At the same time, export earnings fell by 7.07% year-on-year in May. Bankers warned that pressure on the dollar market could intensify in the coming months as businesses expand and import demand recovers. So far in the current fiscal year, Bangladesh Bank has purchased around $6.5 billion from commercial banks. Bankers said there is now a significant gap between Bangladesh Bank's published inter-bank dollar rate and the actual rates prevailing in the market. Former Bangladesh Bank governor Ahsan H Mansur said, "Bangladesh Bank has a tendency to keep the dollar rate artificially fixed. That should not be the case because the exchange rate should be determined by the market." He added, "It is essential to activate the interbank foreign exchange market. However, the interbank market has yet to become fully functional."

(Source：The Business Standard)