Central bank sells $521m to banks in 24 days of April

The Bangladesh Bank has sold $521 million to banks in 24 days of this month due mainly to the growing demand for import payments.

Officials of the central bank said the demand for the greenback had increased owing to the economic rebound from the Covid-19 pandemic and the ongoing Russia-Ukraine war.

The central bank’s latest data shows it sold around $4.5 billion to banks in nearly nine months of this fiscal year to check the rise in the value of the American currency. It is continually selling dollars despite the local currency’s devaluation.

The interbank exchange rate stood at Tk 86.2 per dollar on Monday, up from Tk 85.15 per dollar in August last year. The local currency was devaluated to Tk 1.05 in eight months of this fiscal year.

A high official of the central bank’s Forex Reserve and Treasury Management Department told The Business Post the increasing trend of import payments was the main reason behind the dollar shortage in banks.

He said the state-run commercial banks had bought a large amount of dollars from the central bank.

Import payments rose sharply by 52.01 per cent to $52.6 billion from July to February of the current fiscal year.

As per the central bank’s latest data, petroleum import payments rose by 89.24 per cent to $4.03 billion in eight months of FY22, intermediate goods by 58.11 per cent to $4.02 billion, and capital machinery by 61.04 per cent to $3.04 billion.

The Bangladesh Bank official said import payments would increase further in the coming days as industries were expanding after the Covid-19 shocks.

The slow trend of remittance earnings is another reason behind the central bank’s dollar selling spree. Remittance inflow fell by 19.5 per cent to $13.44 billion between July and February of this fiscal year, as per the central bank data.

Industry insiders said remittance inflow would increase at the end of April due to Eid-ul-Fitr.

Agrani Bank Managing Director and Chief Executive Officer Mohammad Shams-Ul Islam told The Business Post the economy and businesses had already overcome the Covid-19 fallout, causing import payments to increase.

He said the increasing trend of commodity prices in the global market was another reason behind the sharp rise in import payments.

Policy Research Institute Executive Director Ahsan H Mansur said import payments had risen sharply in the last several months, which was good. “But fund management for import payments has become very difficult.”

Rising import payments might bring down the country’s reserve to below $40 billion at the end of the current fiscal year, he said.

The foreign exchange reserve stood at $44 billion on April 20, down from $46 billion in December last year, the central bank data shows.

Mansur said the government should reduce imports.

Finance Minister AHM Mustafa Kamal on April 21 said the import of luxury items should be controlled.

Meanwhile, the current account deficit is continually rising due to the sharp rise in import payments, reaching $12.83 billion in the first eight months of the current fiscal year. The current account had a surplus of $825 million during the same period a year before.

The Bangladesh Bank began selling the greenback in August last year as the local currency was, and still is, experiencing a depreciating trend after more than a year following a decline in remittance and an increase in import payments.