Bangladesh Bank (BB) Governor Fazle Kabir has called upon bankers to discourage imports of luxury goods considering the current foreign exchange crisis and high inflation in the country.
"The country is now facing a new challenge about inflation and dollar rate. This is not the challenge for only the central bank but also for the whole banking community," he said at a function at the Officers' Club Dhaka on Saturday.
"So, all banks will have to face the challenge collectively," he also said while speaking as the chief guest at the inaugural session of the scholarship award function for meritorious students organised by Al-Arafah Islami Bank.
The governor also raised concern about the widening current account balance saying, "Our trade balance has gone negative a lot."
The current account balance deficit widened to $12.83 billion as of February this year. The balance was an $825 million surplus in the same period last year due to lower imports and a record inflow of remittances.
According to the central bank, the trade deficit widened to 80.48% in the July-February period of the current fiscal year. For the eight months of FY2022, the deficit was $22.30 billion. It was $12.36 billion in the same period last fiscal.
However, due to the increase in medium- and long-term loans as well as the increase in foreign exchange, the financial account surplus was $10.93 billion during the July-February period of the current fiscal year, up from $6.47 billion in the same period of the previous fiscal year.
The governor said the Bangladesh Bank is providing dollar support at a rate of Tk87.90 from the forex reserve for the imports of necessary items such as fuel, food, baby food and fertiliser because these items cause impacts on inflation.
"The other products, such as industrial materials and capital goods, are also needed. However, the products will not instantly affect inflation. So, their imports can be slowed down if not very urgent," he added.
In the last few months, the growth of imports has exceeded 40% due to an increase in prices of almost all commodities in the world market including food and fuel. Although there is good growth in exports, it cannot keep pace with the growth of import expenditure.
At the same time, remittances have come down by about 18% compared to last year. As a result, reserves fell below $42 billion at one point.
To keep the reserves healthy, the Bangladesh Bank has directed banks to maintain LC margin at 50%-75% to discourage the imports of luxury goods.
The central bank has sold dollars at lower than the market price from the reserves to meet the import costs to the commercial banks to control the inflation caused by the rising prices in the world market.
According to the latest data, the central bank has sold more than $5.5 billion from reserves to various banks in the current financial year. However, the Bangladesh Bank had to buy about $8 billion from banks in the previous financial year due to oversupply.
The dollar crossed Tk100 in the kerb market due to the crisis. Although the central bank set the price unofficially, banks did not comply. In the case of opening import LCs, they were charging Tk97-98 per dollar. Due to volatility in the dollar market, banks started trading dollars at arbitrary prices to meet the demand.
To address the crisis, the central bank on Thursday decided to trade dollars at a fixed rate in a meeting with the Association of Bankers, Bangladesh, a platform of chief executives of commercial banks, and the Bangladesh Foreign Exchange Dealers Association. The effect of this decision is expected to start affecting the country's economy from Sunday.
Under its social responsibility programme, Al-Arafah Islami Bank is providing scholarships for higher education to 200 students who have passed the HSC examinations in 2019.
Chairman of the bank Selim Rahman presided over the function. The bank's Managing Director and Chief Executive Officer Farman R Chowdhury delivered the welcome speech at the occasion.
Apart from the students and their parents, Vice-Chairman of the bank's board Alhaj Abu Nasser Mohammad Yahya, its director Alhaj Abdus Samad Labu and other senior former and current officials of the bank were present at the function.