a year ago

Mitigating payment pressure on reserves

Central bank tightens LC rules, doubles margin for non-essential imports  

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The central bank has tightened the letter of credit (LC) rules, doubling the margin for all imports, save some essentials, to ease import-payment pressure on the economy, according to officials.

Under the latest move, the Bangladesh Bank imposed a prohibitive 50-per cent cash LC margin at the minimum on all non-essential items instead of 25 per cent, according to a notification issued by the BB on Tuesday night.

Besides, such LC margin for high-end motor vehicles like SUV and Sedan cars along with electrical and electronic products which are being used as home appliances has been fixed at minimum 75 per cent, up from 25 per cent.

The products exempted from the LC-margin-restriction inventory are baby foods, essential food and energy products, lifesaving drugs, local and export-oriented industries, government imports for priority projects and agriculture-related imports, according the notification.

 "We've imposed higher LC margin to discourage the import of unnecessary items as well as luxury goods," Abu Farah Md. Nasser, deputy governor of the BB, told the FE while explaining the main objective of the monetary measure.

 The deputy governor termed it a temporary measure that will also help improve the country’s current-account situation.

Talking to the FE, another BB official said importers will have to pay higher LC margin for luxury motor vehicles and electrical and electronic products under the revised rules.

 Earlier on April 11 last, the central bank imposed minimum 25-percent cash LC margin on all imports excepting some essential items on the same grounds, as reports say the country’s foreign-exchange reserves could get under stress.

The fresh regulatory move comes against the backdrop of rising trend in the current-account deficit alongside depreciating mode of the local currency against the US dollar recently mainly due to higher import-payment pressure on the economy.

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