LC settlement dollar rate reaches Tk125 as demand rises

As the remittance dollar rate continues to rise, the exchange rate for settling import letters of credit (LCs) has been increased to Tk123.80-125, which may lead to higher import costs and trigger imported inflation, according to bankers.

After speaking with policy-making officials from at least five state-owned and private banks, TBS yesterday came to learn that banks collected remittance dollars at rates of Tk124.80-125.60.

Just a day earlier, banks collected remittances at a maximum rate of Tk124.20. Previously, in November 2023, the remittance dollar rate in formal channels had reached a peak of Tk126.

As a result of the rising remittance rate, the dollar rate for LC settlements has increased by at least Tk1 within two days, reaching a maximum of Tk125. Previously, banks sold dollars to customers at rates ranging from Tk122 to Tk124, depending on the client.

Shawkat Ali Khan, CEO and managing director of state-owned Sonali Bank, said the price of the dollar depends on demand and supply. "Although our overdue payments have decreased, the overall market demand has increased, leading to a rise in the dollar's price."

The country head of a foreign exchange house told TBS that the demand for dollars in banks has significantly increased compared to before. Over the past two days, the remittance dollar rate has risen by nearly Tk1.5, he said.

"Today [Thursday], many banks approached us to purchase dollars. We sold dollars to banks at rates of Tk124.40-124.60," he said.

Citing examples of increased dollar demand from customers, the official said, "There have been instances where banks are calling us to purchase dollars while the customers are sitting right beside them. With the customers' consent, they are buying dollars at higher rates. In other words, customers have become more inclined to manage dollars proactively."

Impact on inflation

In the coming weeks, LCs will be opened for importing Ramadan commodities. If the dollar rate remains at this level, seasoned bankers have warned that it could hinder the efforts to control inflation.

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, said the remittance dollar rate has increased significantly, which has consequently driven up the dollar rate for LC settlements as well. 

"State-owned banks may be under pressure to make some large payments, which could naturally impact the dollar rate," he said.

Commenting on the potential impact of the rising dollar rate on inflation, the banker said, "The increase in the dollar rate could lead to inflationary pressure. However, it doesn't seem likely to be too significant at the moment."

Concern over dollar price

An official from the treasury department of a state-owned bank said, "We are concerned about buying dollars at higher rates. Remittance dollars are now being purchased at significantly higher prices. For export proceeds, we are paying rates of Tk119-120. As a result, our average dollar purchasing cost is rising, and consequently, the selling rate is also increasing.

He said a payment for Petrobangla was made at a rate of Tk124 yesterday. "We made no profit on this transaction. We have informed their authorities that for the next payment on Sunday, the dollar rate will need to be Tk125, as it is not feasible to sell dollars at a lower rate after buying them at a higher price."

Commenting on the payment pressure due to overdue payments from several state-owned enterprises, the official said the state-owned enterprises that import goods did not have sufficient funds in their accounts earlier, which prevented them from buying dollars.

"In the past few days, some money has been deposited into these accounts, and now they want to make the payments. As a result, our demand has increased somewhat," he explained.

However, the official alleged, "Due to the central bank's lack of proper surveillance, one or two private banks are playing a key role in driving up the dollar price."

A managing director of a bank on condition of anonymity said the International Monetary Fund (IMF) is putting pressure on the central bank to implement a crawling peg system to determine the dollar rate. "Based on this, we suspect that in the future, the central bank may open up the market and fully implement the crawling peg." 

He added, "As a result, the dollar price could rise. In light of this concern, customers are eager to clear their payments. At the same time, large foreign exchange houses are taking advantage of this opportunity to increase prices."

Remittance inflow rises

During the July-November period of the current fiscal year, remittance inflows through formal channels increased by 26.44%. In the first five months of the previous fiscal year, remittances amounted to $8.81 billion. This figure has risen to $11.14 billion in the current fiscal year.

An analysis of the central bank's data shows that remittances in the country's banking sector have increased by $2.34 billion in the current fiscal year compared to the previous year, with state-owned banks taking the entire amount. 

After the interim government took office, most state-owned banks have surpassed private banks in collecting remittance dollars. From July to November of the current fiscal year, five state-owned banks — Agrani, Janata, Rupali, Sonali, and Krishi — received $3.42 billion in remittances. 

In the same period of the previous fiscal year, these banks received $1.08 billion, reflecting a nearly 217% increase or $2.34 billion in remittance inflows. 

Among these banks, Rupali Bank saw the highest growth, with a 1,343% increase. Other state-owned banks have also achieved over 100% growth in remittance inflows this year.

An analysis of the central bank's data shows at the beginning of August, commercial banks had $6.09 billion deposited in their Nostro accounts. By the end of October, the amount had decreased by 24%, dropping to $4.62 billion.

The central bank has reported that as of 11 December, the country's forex reserves stood at $19.2 billion according to BPM6. This was a decrease from $19.87 billion on 30 October.

The BPM6 is the international standard for calculating foreign exchange reserves. The IMF requires countries to calculate and release their foreign exchange reserves using the method.