The Bangladesh Bank has sold $4.53 billion from its forex reserves to commercial banks during the period between July 1 and November 2 of FY24 to facilitate fuel imports through the letter of credit (LC) process.
The central bank sold $5.14 billion to commercial banks during the same period of FY23. It sold $67 million to banks on last Thursday.
Despite restrictions imposed by the central bank and the National Board of Revenue on imports last year to conserve the US dollar, forex reserves continued to drop steadily.
The regulator sold $1.15 billion to commercial banks in July while $1.10 billion in August and $1.5 billion in September of FY24. Currently, the Bangladesh Bank is selling the greenback to banks at the rate of Tk 111.
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 country experienced a significant decline in remittances, 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’s export earnings dropped by 13.64 per cent to $4.36 billion in October this year, the lowest since August 2021.
Talking to The Business Post, Executive Director of Policy Research Institute Ahsan H Mansur expressed concerns about the central bank's US dollar selling strategy, saying that it is not a good sign 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 reserves,” he added.
As per the BPM6 method, Bangladesh's forex reserves stood at $20.66 billion on Nov 1 after the central bank 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 continues.
For over one and a half years, the money market has been grappling with the 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 per cent to 40 per cent of our demand, as importers grapple with difficulties in opening LCs due to the US dollar crisis.”
