Settlement of LCs ballooned by 45.3% year-on-year to $10.76 billion, while LCs worth $12.13 billion were opened during July-August of the current fiscal year

The interbank exchange rate of dollars has risen to Tk85.65 from Tk84.8 in just two and a half months, according to Bangladesh Bank data, with per dollar value in the open market standing at Tk90.

Bankers and economists say that the increase in post-Covid-19 business transactions, the opening of a large number of letters of credit (LCs) in the last few months, and payment of old dues are the main reasons behind the rising price of the greenback.

Settlement of LCs ballooned by 45.3% year-on-year to $10.76 billion in July-August, according to central bank data.

In these two months, LCs worth $12.13 billion were opened for importing various products — a 48.6% rise year-on-year rise.

Market insiders said that although the spot rate of dollar rose by Tk0.85 during the two-month period, the value of BDT against the USD went up by around Tk2-5 in the open market.

“I had to buy a few dollars last Friday to pay for an ad. The price was Tk91 per dollar. But last month, I bought dollars from the open market for Tk86. The price is fluctuating by Tk2-5 every day in the open market,” said a businessman who recently paid a third-party agency for a boost on Facebook.

Rise in prices of various commodities, including oil, in the international market also played a role in this, economists said.

Oil prices hit multi-year high on Monday buoyed by recovering demand and high natural gas and coal prices, reports Reuters.

Brent crude oil futures were up 0.7% to $85.45 a barrel by 0900 GMT, after hitting $86.04 — the highest since October 2018.

AB Mirza Azizul Islam, economist and former financial adviser to a caretaker government, told Dhaka Tribune: “The increase in post-Covid-19 business transactions in the dollar market may have had an impact. In the past few months, imports of various food items, including rice and lentil, have gone up.”

Furthermore, remittance inflow and international investments have also dropped, adding to the problem.

Remittance inflows to Bangladesh fell to a 16-month low of $1.72 billion in September. Earnings were the lowest since May last year as since then, the monthly inflow has ranged between $1.83 billion and $1.78 billion until August of this year.

A rise in the costs of purchasing machinery and increase in travel costs due to reopening of borders has also driven up the demand for USD, economists said.

Capital machinery imports rose to $639 million in the first two months of the current fiscal year — a 11% increase from the same period of the previous fiscal year.Apart from this, people have been visiting abroad for travel and treatment. This has put pressure on the dollar. As a result, prices have gone up in banks and the open market,” Azizul Islam said.

Moreover, the rise in prices of cotton, yarn and oil in the international market may also have had an impact on this, he added.

Despite having adequate forex reserves in the country, the Bangladesh Bank is concerned about this upward trend in the price of dollars.

Forex reserves of the Bangladesh Bank stood at $46.16 billion as of Sunday.

According to central bank data, an average of $350 to $400 million is needed per month to meet import costs, meaning it is possible to meet the import cost for 10 to 11 months with the current reserves.

To keep the situation stable and maintain the value of taka, the central bank has been continuously boosting the sales of USD.

“As of September, Bangladesh Bank sold $641 million to banks,” said Serajul Islam, executive director and spokesperson of Bangladesh Bank.

Islam explained that business is on the recovery in both international and domestic markets.

“Transactions are increasing, and that is normal. If you start something after stopping for a long time, there is more speed. If you notice, the number of LC openings has increased a lot since the beginning of the current financial year,” he added.

Moreover, businesses have started paying past dues, which has increased the demand for dollars in the market, resulting in the price going up a bit.

Another Bangladesh Bank official, seeking anonymity, said that the country has started investing money from the reserve.

Sri Lanka has already been given a loan from the reserve. Investments are also being made in government bills and bonds of different countries, he said.

“As a result, it is expected that the rate at which income from Covid-19 reserves declined may now increase again. Because interest rates have already started rising in the international market,” the official said.

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