LC settlement rate climbs to Tk123.55
A senior Bangladesh Bank official told TBS that a handful of commercial banks are driving up the dollar rate
Highlights:
- LC settlement dollar rate rose to Tk123.55 at several banks
- Dollar increased Tk0.70 over the past 15–20 days
- Higher dollar costs significantly increased import expenses for businesses
- Some banks' aggressive dollar purchases disrupted foreign exchange market stability
- Fuel import payments, weaker remittances, pressured dollar demand upward
- Market dollar rates exceed Bangladesh Bank's official published rates
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 Tk123.55 yesterday, The Business Standard understands after discussions with business groups, senior commercial bank officials and the central bank. The findings indicate that the dollar rate has been rising steadily over the past two weeks.
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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. "We are now paying significantly more for every dollar than before. The settlement rate used to be Tk122.85."
The business group also shared an estimate of the additional cost. It said settling a $2 million LC now costs about Tk1.4 crore more than before, substantially increasing import costs. The company warned that the higher dollar price could further fuel inflation.
A senior Bangladesh Bank official told TBS that a handful of commercial banks are driving up the dollar rate. According to the official, when one bank purchases dollars from exchange houses at higher rates, the exchange houses seek to sell dollars to other banks at the same price, 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. Since banks buy dollars from exchange houses and then sell them for LC settlements with a profit margin, higher purchase prices ultimately translate into higher settlement rates.
Senior officials at several commercial banks acknowledged that a few banks are paying above-market prices for dollars, influencing the broader foreign exchange market. They said the Bangladesh Bank should take appropriate action against those institutions, noting that aggressive dollar purchases by several banks in late 2022 had similarly destabilised the market.
Bankers, on the other hand, said demand for dollars has been driven primarily by payments for government fuel imports. Although the volume of fuel imports has remained largely unchanged, the cost of settling those LCs has increased because global oil prices surged during the Iran conflict, affecting payments for fuel import contracts opened about two months ago.
They also noted that remittance inflows slowed considerably in June. During the first 28 days of the month, remittances exceeded $2.5 billion. By comparison, Bangladesh received more than $3 billion in remittances in each of the previous six months.
At the same time, export earnings fell by 7.07% year-on-year in May. According to the latest data from the Export Promotion Bureau (EPB), Bangladesh exported goods worth $4 billion in May, down from $4.73 billion in the same month last year.
Bankers said the government is currently facing heavy demand for dollars to finance fuel imports while foreign currency inflows remain comparatively weak.
They also warned that pressure on the dollar market could intensify in the coming months. Private sector credit growth currently stands at just 4.75%, indicating subdued business activity. However, as businesses expand and import demand recovers, LC openings are expected to rise, placing additional pressure on the dollar market. Bankers expressed concern over how high the exchange rate could climb under such circumstances.
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. While the rate remains at Tk122.85 per dollar, they argue that the market is trading well above that level, making the official rate non-reflective of actual transactions. The reference rate is Tk123.18.
Yesterday, the BC selling rate quoted by various commercial banks ranged between Tk123.55 and Tk123.60 per dollar.
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. The price at which banks are currently buying remittances reflects the true value of the dollar. However, the central bank continues to show an average rate of Tk122.85, which is not reflective of the real market."
He added, "It is essential to activate the interbank foreign exchange market. However, the interbank market has yet to become fully functional."
The treasury head of one commercial bank said interbank foreign exchange transactions remain very limited because banks are instead buying dollars directly from exchange houses at rates between Tk123.50 and Tk123.60.
According to Bangladesh Bank data, a total of $63.5 million was traded in the interbank market over the past five working days.
The treasury head of another private commercial bank said the exchange rate published by Bangladesh Bank is significantly below the actual market rate and therefore does not accurately reflect prevailing market conditions.
