The Bangladesh Bank has sold $3.75 billion from its forex reserves to commercial banks between July 1 and September 8 of FY24 to facilitate essential fuel imports through the letter of credit (LC) process for the government.
Despite restrictions from the central bank and the National Board of Revenue on imports last year to conserve the US dollar, the forex reserves continued to deplete steadily.
In September of FY24, the regulator sold $1.5 billion to commercial banks, with $1.15 billion in July and $1.10 billion in August of the same fiscal year. Currently, the Bangladesh Bank is selling the greenback to banks at Tk 110.50.
The country's banking sector has been grappling with US dollar market volatility, impacting importers' ability to secure the US dollar for LCs.
Furthermore, the nation experienced a significant decline in remittances over the last two months, receiving $1.34 billion in September and $1.59 billion in August. A senior official of the central bank seeking anonymity said that they are selling $50-60 million per day to commercial banks to meet their demand.
In addition, the country recorded its lowest export earnings in September, amounting to $4.31 billion, the lowest since April of the current year, following $4.78 billion in August.
Talking to The Business Post, Policy Research Institute Executive Director Ahsan H Mansur expressed concerns about the central bank's US dollar selling strategy, noting that it is not a favourable move for the economy. He suggested that banks should earn US dollars through legal channels rather than relying on the regulator. The central bank is striving to maintain reserves above $20 billion, taking foreign loans and reducing the Export Development Fund (EDF) to bolster the reserves.
As of the BPM6 method, Bangladesh's forex reserve position stands at $21.05 billion, with the central bank having sold $13.50 billion to commercial banks in FY23 to address the dollar crisis. Despite the continuous decline in forex reserves this fiscal year, the central bank's dollar selling spree persists.
For over a year and a half, the money market has been grappling with a dollar crisis. Last year, the dollar exchange rate reached Tk 122 in the kerb market.
At that time, many banks reportedly created an artificial crisis of the greenback to gain more from sales, said banking sector insiders.
The Bangladesh Bank fined treasury heads of 10 banks for charging higher rates to importers for LC openings in September of the current year. Additionally, the central bank found that 12 banks had allegedly manipulated the dollar market, initially taking action by temporarily removing their treasury heads but later retracting the decision entirely.
Since last September, the Association of Bankers Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA) have been fixing the exchange rate for the US dollar.
Chief of the treasury department of a private bank, wishing not to be named, told The Business Post, “We receive US dollar from the central bank, covering 30% to 40% of our demand, as importers grapple with difficulties in opening LCs due to the US dollar crisis.”