The central bank took the decision on LC margin reduction from 100 per cent to 50 per cent to fulfil a condition set by the International Monetary Fund (IMF) in disbursing loans under the Poverty Reduction Growth Facility (PRGF).

As the IMF suggested withdrawal of LC margin on all products by November this year, the government has decided to withdraw the margin in phases, according to sources in the Ministry of Finance.

In November 2001, the central bank had imposed 100 per cent LC margin on all consumer and essential items to ease pressure on foreign exchange reserves amidst a surge in import of non-essential items.

The forex reserves at that time declined to about $1 billion whereas it rose to over $2.5 billion this week.

However, the BB relaxed the LC margin by 25 per cent on rice and wheat imports over the past few months. Besides, duties on onion and sugar were cut to 50 per cent while duty on industrial raw materials was withdrawn.

According to the latest decision, LC margin was slashed to 50 per cent from 100 per cent on items including biscuit, chocolate, imitation jewelry, television, refrigerator (above 8cft), vehicles (1800cc), electronic fan, two-in-one, plastic goods, gas and electric burner (cooking), air-conditioner, washing machine, cement, footwear, news papers, magazines and cosmetics.