Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has received at least five proposals for allowing hedging the price risk of commodities to offset the effect of their price volatility in the global market.
Two foreign commercial banks – Citibank NA and Standard Chartered Bank – have already submitted proposals to the Bangladesh Bank (BB), the country’s central bank, seeking permissions to sign deal with three corporate entities for hedging price risk of commodities like cotton, zinc and wheat, officials said.
“The BB is now scrutinizing the proposals carefully to protect the importers’ interest,” a BB senior official told BBN, adding that at least two local private commercial banks have already contacted the concerned officials of the central bank to know about the hedging of price risk of commodities.
Three corporate entities, which have already showed interest in hedging price risk of the items, are Square Group, PHP Group and ACI Limited, they added.
On May 27 last, the central bank of Bangladesh allowed hedging the price risk of commodities to offset effect of volatility in prices of essentials, including petroleum products, in the global market.
Hedging is a strategy designed to minimize the exposure to an unwanted business risk while still allowing the business to profit from an investment activity.
Under the provisions, all the details of commodity hedge transactions that have been approved and booked with the clients should be reported to the central bank on a monthly basis.
Besides, the commercial banks will have to send a detailed report to the BB on maturity of each transaction, according to the circular, issued by the central bank earlier.
In South Asia, India and Sri Lanka have already allowed such transactions to minimise exposure to foreign exchange and commodity price risks.