The exchange rate for USD remittance experienced another increase on Thursday, with several banks acquiring remittance at Tk 122.25 from foreign currency exchange houses, as confirmed by various heads of treasury to The Business Post in the evening yesterday.
This surge in the remittance rate occurred despite the recent decision by the Association of Bankers, Bangladesh (ABB), and Bangladesh Foreign Exchange Dealers Association (BAFEDA) to fix the rate. Prior to Thursday, the rate hovered around Tk 120. However, just a day after the fixed rate decision, the remittance price witnessed another uptick, presenting challenges within this sector.
While ABB-BAFEDA officially set the remittance rate at Tk 110 on Wednesday, sources, speaking on condition of anonymity, disclosed that banks purchased remittances from forex exchange houses at Tk 122.35 on Thursday. It appears that, in practice, banks are not adhering to the fixed rate set by ABB-BAFEDA.
Simultaneously, importers are encountering difficulties in opening letters of credit (LC) in banks. Another source, preferring anonymity, stated that banks are unwilling to open LC at Tk 110.50, and importers are compelled to open LC at Tk 124.50-125. Despite the fixed rate by ABB-BAFEDA, many banks are not aligning with this rate.
The same source said, "The official LC rate on paper is Tk 110.50, but banks receive Tk 13-14 per USD from importers unofficially."
A senior official from the central bank, speaking anonymously, revealed that the central bank is actively working to decrease the LC openings of banks. The regulator is taking measures to enforce a reduction in LC openings, aiming to maintain a positive current account. The official emphasised, "If the demand for LC decreases, the selling of USD from the reserve will also decrease."
The remittance rate within the banking sector has risen to Tk 124. This increase occurred after ABB-BAFEDA initially directed that banks could borrow USD at any offered rate. Subsequently, ABB-BAFEDA convened a meeting and decided that banks should not offer rates higher than Tk 116. Before this decision, ABB-BAFEDA had instructed banks to offer a 2.5 per cent extra incentive from their own funds, including government incentives.
Bangladesh Bank Executive Director Mezbaul Haque mentioned during a Thursday briefing that the central bank considers the currency appreciated on Wednesday because the current account stays positive. “We hope the inflow of remittance will increase in the next week."
Insiders in the industry suggest that the interventions by ABB-BAFEDA have not brought stability to the USD market; instead, the market has become more volatile.
In the preceding year, the dollar rate reached Tk 122 in the kerb market. However, the current scenario has seen a further increase, with the rate soaring to Tk 128 in the kerb market. Compounding the issue, banks faced challenges in opening letters of credit (LCs) required by businesses.
In an effort to stabilise the situation, Bangladesh Bank entrusted ABB and BAFEDA with the responsibility of setting monthly dollar exchange rates. This directive, effective since September 2022, aimed to bring about a regulated exchange environment.
Regrettably, certain banks have not adhered to the exchange rates stipulated by ABB and BAFEDA, as directed by BB. Investigations conducted by the central bank have uncovered instances where some banks are imposing rates even higher than those set for remittances.
Notably, in FY2022-23, BB facilitated the sale of over $14 billion to commercial banks for LCs, contributing to the complexities of the ongoing exchange rate dynamics.
