Now Bangladesh Bank chips in to tame onion prices

The central bank yesterday instructed banks to fix the interest rate for financing onion imports at 9 percent instead of existing 12-14 percent with a view to containing the price spiral of the essential cooking commodity.

Banks have also been asked to set a lower margin for opening letters of credit (LCs) for onion import, according to a Bangladesh Bank notice.

The instruction will remain in effect till December 31 this year.

This means, businesses will get policy support from the central bank, which will reduce their import cost, said bankers.

Onion price has skyrocketed in recent days as opportunistic wholesalers bumped up the price following India’s ban on the ingredient’s export.

Yesterday, the onion price at the kitchen markets in Dhaka was Tk 110 to Tk 120 a kilogramme, up from Tk 40 to Tk 50 on September 29.

Lenders are now charging a margin of up to 50 percent while opening LCs for onions based on bank-customer relationship.

The import margin is the portion of the cost of the imported products that the importers must pay to banks in advance when opening the LCs.

Onion importers usually repay their loans within three-four months after receiving their goods. The central bank move will have a positive impact on the market, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a forum of private banks’ managing directors.

“But it will not be notable given the level of the hike.”

The central bank took similar initiatives in the past whenever the price of a product soared, but the outcome was minimal.

“The price will cool down in the local market when the supply side is stable,” said Rahman, also the managing director of Dhaka Bank.

Since India slapped the ban on the export of onion on Sunday, 3,692 tonnes of the vegetable entered Bangladesh from countries such as Myanmar, India, Egypt, China, and Thailand.