The opening of letters of credit for imports surged to $6.92 billion in December, marking a 30-month high as businesses ramped up Ramadan-centric imports.
According to Bangladesh Bank data, LC opening rose from $5.4 billion in December 2023 to its current level.
The amount of $6.92 billion in December was highest after June 2022 when it was at $7 billion.
Bankers noted that business activity had been gradually recovering in recent months from the stagnation seen in July and August of 2024.
During that period, the country experienced disruptions due to student-led mass uprising against the Awami League government鈥檚 authoritarian rule. On August 5, the Sheikh Hasina-led government was ousted.
Many businesses opened LCs in anticipation of Ramadan, which may begin on March 1. Government imports might have also contributed to the surge in December.
The sharp increase in import demand pushed the dollar price higher in November and December, reaching Tk 128 per dollar at one point.
The interbank dollar price now reached Tk 122 each from Tk 120 each.
The exchange rate per dollar was Tk 84.81 in June 2021, Tk 93.45 in June 2022 and Tk 106 in June 2023.
LC opening began to fall from 2023 as the government and the Bangladesh Bank had implemented several initiatives since April 2022 to address the rapid growth of imports and safeguard the country鈥檚 foreign exchange reserves.
The Bangladesh Bank had provided dollars from its foreign exchange reserves to meet high demand for the government imports, which eventually put tremendous pressure on the dollar market.
The BB had also imposed high LC margins on imports, particularly on those non-essential and luxury items, which has recently been relaxed.
Businesses have expressed fears that this sudden spike in dollar prices would have a negative impact on the economy.
Bangladesh, like many other countries, has foreign debt denominated in US dollars.
As the taka depreciates, it will take more taka to repay the same amount of foreign debts in dollars. It can lead to higher debt repayment obligations for the government and businesses, economists said.
Besides, higher dollar rates mean increased import costs, which, in turn, would raise production expenses and consumer prices.
This could worsen the country鈥檚 inflation crisis, affecting purchasing power and overall consumer spending.
LC opening increased to $34.89 billion in July-December period of 2024 compared with that of $33.49 billion in the same period of the previous year.
The Bangladesh Bank provided dollars from its foreign exchange reserves to meet high demand for the government imports.
Bangladesh鈥檚 gross foreign exchange reserves, according to International Monetary Fund guidelines, reached $19.97 billion on January 28 from $46 billion in December 2021.
