Banks asked to charge lowest LC margin

Staff Reporter :
The Bangladesh Bank (BB) has directed all commercial banks to relax the margin rate against the opening of import letters of credit (LC) for eight food items at the minimum level to keep the prices tolerable and ensure adequate supply during the month of Ramzan.
The food items are edible oil, sugar, chickpeas, pulses, beans, onions, dates and spices.
In a circular on Sunday, the central bank asked all banks to keep the opening margin rate at the minimum level based on banker-customer relations effective immediately.
The central bank fixed the opening margin rate for the settlement of letter of credit at 75 per cent in a bid to limit imports to save the depleting reserves of foreign currency.
The instruction comes more than three months before the fasting month begins.
The demand for edible oil, gram, lentil, onion, spices and dates usually goes up during Ramadan. As a result, the prices of the items increase.
The prices of key items such as edible oil and sugar have already surged in Bangladesh for the higher import costs of the raw materials needed to produce the items, the escalated transport and fuel costs, and the energy shortage, driven mostly by the Russia-Ukraine war.
The central bank does not set any margin on the import of commodities, and it is usually determined based on the bank-client relationship. Banks can even decide to impose no margins. But in July, the BB asked banks to take up to 100 per cent of import payments in advances from businesses while opening LCs for luxury and non-essential items, in an effort to keep the foreign exchange reserves stable.
The reserves fell from $39.60 billion in July to $33.92 billion on December 7.
Traders continued to raise the prices of import-dependent commodities including edible oil, red lentil, atta, sugar and onion blaming increase in import cost.
As per the state-owned Trading Corporation of Bangladesh (TCB) data, the prices of edible oil increased by up to 25 per cent in one year.
The TCB data also showed that the prices of red lentil increased by 76.42 per cent over the year, while the prices of atta increased by 78 per cent and the prices of refined atta increased by 40 per cent in one year.
The prices of imported onion increased by 40 per cent in the period under consideration and the item sold for Tk 45-60 a kg in the city markets.
The prices of sugar increased by 45.16 per cent in last one year, which was selling at Tk 120-130 per Kg in the local market on Sunday.