The Bangladesh Bank has sold $6.70 billion from country’s forex reserves to state-owned and private commercial banks in the first six months of the current fiscal year to facilitate commodity and fuel imports through the letter of credit (LC) process.
In the same period from July 1 to December 29, the regulator also bought $1.04 billion from the banks to increase forex reserves which was required by the International Monetary Fund (IMF) as per the $4.7 billion loan agreement.
A senior official of the central bank, seeking anonymity, said that the regulator was selling $50-60 million to banks per day to meet the demand for US dollar.
Talking to The Business Post, former lead economist of World Bank’s Dhaka office Zahid Hussain said, "If the central bank doesn't supply USD to banks, the situation would be worst. Right now import payment should be smooth for essential commodities and fuel."
He also said, “USD support by the central bank is not a permanent solution. The government should focus on boosting export earnings and remittance inflow, as well as zero tolerance policy to halt capital flight."
The economist continued that the remittance rate in banks, which is much lower than that of the informal channel, is the key issue to lower growth of expatriate income.
Officially remitters’ beneficiaries get Tk 109.75 for per USD with 2.5 per cent incentive from the government and additional 2.5 per cent from the banks, while the informal markets are offering up to Tk 122.
Association of Bankers, Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA) have been fixing the exchange rates since September 2022 as per the Bangladesh Bank’s decision.
However, Zahid Hussain believes that the USD rate should be market-based and it is the proper solution to enhance the country’s remittance inflow which may help meet the USD shortage.
Policy Research Institute (PRI) Executive Director Ahsan H Mansur has 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 dollar through the legal channel rather than relying on the regulator. The central bank is striving to maintain reserves above $20 billion as per IMF target while the government is trying to take more foreign loans and reduce the Export Development Fund (EDF) to increase reserves.
Moreover, the central bank started buying the USD from scheduled banks, especially Islami Shariah-based banks.
As per the BPM6 method, Bangladesh's forex reserves stood at $21.44 billion as of 28 December 2023.
The central bank pumped $13.50 billion in FY23 to meet the greenback shortage.
Since mid-2022, the country has been grappling with a USD crisis. Last year the 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 backtracked on its decision.
Chief of 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 per cent to 40 per cent of our demand, as importers grapple with difficulties in opening LCs due to the US dollar crisis.”
