Money market gets a respite as import falls

A fall in the overall import growth has brought a relief to both foreign and local currency markets in the last few weeks.
The average rate of interest in the call money market started falling from the last week of February and came down to 12.01 percent on March 1. The rate was above 19 percent every day in the first half of February.
The exchange rate against the dollar also started to decline from mid-February and the rate in the inter-bank foreign exchange market fell to below Tk 81 in March, down from more than Tk 84 in the first week of February.
A central bank official said a restrained monetary policy of the Bangladesh Bank and its strong monitoring helped stabilise the foreign exchange market and build up reserves.
Import of fuel and fertiliser marked a rise in the first eight months of the current fiscal year, while that of consumer commodities, including rice and wheat, fell drastically, according to central bank statistics.
Import of rice almost halved and stood at $275 million from July 1 to February 25 in the current fiscal year, shows statistics of letters of credit settlement.
The amount was $430 million in the same period last year.
On the other hand, LC opening for rice import fell to $105 million during the same period, down from $947 million last year.
Import of wheat was worth $441 million during the period, while the amount was $718 million a year before.
For wheat import, LCs worth $468 million were opened during the period against $1,635 million during the same period last year.
The central bank official said import fell mainly due to good food production at home.
However, fertiliser import marked a rise in the first eight months of the current fiscal year to $1,523 million, from $1,210 million during the same period last year.
The incidence of LC opening for fertiliser import increased further during the period, to $1,310 million, while the amount was $1,097 million a year ago.
The central bank official said the government should examine why fertiliser import shot up so much.
If imports of fertiliser and fuel did not go up so much in the recent times, the foreign currency market would not be so much volatile, he added.
Statistics of petroleum import was available only for the first seven months of the current fiscal year, which shows fuel imports leapt by 103 percent.
However, except fuel and fertiliser, import of most other items went down, easing the pressure on both local and foreign currency markets.
Hassan Zaman, senior economic adviser to the Bangladesh Bank governor, said “The restrained monetary stance and BB's close forex market monitoring contributed to the greater stability in exchange rate and the build-up of forex reserves.”
The foreign currency reserve rose to $10.01 billion on February 28. Earlier in October last year, the reserve was $10.33 billion, while it fell down to $9.28 billion in November.
He also said higher remittances, greater access to alternative sources of trade finance and lower import payments have increased net foreign inflows in the banking system, eased liquidity pressures and led to the drop in call money rates.
Another high official of the central bank said, though fuel import bill increased, the government arranged alternative financing from various sources.
The government mobilised fund worth $200 million from the international market through some foreign banks to pay the fuel import bills.
Normally the government enjoys credit limit up to $1.5 billion from the Islamic Development Bank, but this year the credit limit has been raised to $2.5 billion.
Besides, private sector companies have been encouraged to borrow from the international market. In the last two months, the private sector borrowers took loan of around $400 million from foreign lenders.