Home ›› 13 May 2022 ›› Front
Banks are imposing higher dollar rates on importers than the official rate set by the Bangladesh Bank, aggravating the country’s already volatile foreign exchange market.
Generally, banks impose Tk 0.5-1 more than the official rate, but they now charge Tk 8-10 more.
The interbank exchange rate set by the central bank was Tk 86.7 per dollar on Thursday, but importers said they were spending Tk 94-96 to pay import bills, terming it a huge burden.
Money changers said the dollar was bought and sold at higher than the official rate in the kerb market as well.
“The exchange rate’s ups and downs depend on demand and supply. It has gone up now as demand is very high,” said Jamuna Bank Managing Director Mirza Elias Uddin Ahmed.
He said banks were now buying the dollar from remittance houses at higher than the official rate to meet the growing demand.
“Most banks and importers are forward booking the dollar to mitigate the risk of foreign exchange rate volatility, which is another reason of the forex crisis,” he told The Business Post.
Forward booking is a means of mitigating the risk of foreign exchange rate volatility. The booking company, commonly called a risk agent, will write up a contract specifying what the rate of exchange will be, and in doing so will assume the exchange rate volatility risk.
Echoing Mirza, Mutual Trust Bank Managing Director Syed Mahbubur Rahman told The Business Post import expenditure was higher than export earnings, creating pressure on the forex market.
Import payments stood at $61 billion during July to March of this fiscal year while export earnings were $36 billion, resulting in trade deficit of $25 billion, the central bank data shows.
Mahbubur said remittance earnings were showing a downward trend now while banks having excess dollars were imposing higher rates to take advantage of the situation.
He said the central bank was continuously pumping dollar into the market to mitigate the volatility, but that was not enough considering the demand.
The Bangladesh Bank was also aware that the exchange rate was higher in the market, he added.
Data shows the central bank injected over $5 billion into the banking sector from August last year to May 11 (Wednesday) to meet the rising demand for the greenback.
Mercantile Bank Additional Managing Director Mati Ul Hasan said the demand for dollar was very high than supply.
“If a bank has a dollar shortage but needs to make import payments, it will arrange dollar anyway to continue its overseas operations,” he said.
He hoped the forex market would cool down in the coming days as the central bank had tightened its rules of opening letters of credit for importing non-essential goods.
“The exchange rate is not favouring exporters in the sense that banks are taking advantage of the depreciation of taka against dollar,” Bangladesh Knitwear Manufacturers and Exporters Association Executive President Mohammad Hatem told The Business Post.
“We are getting Tk 85.5 per dollar while banks are charging Tk 95 per dollar for import payments,” said the business leader.
He said people were suffering as import costs of essential commodities had gone up and banks were charging more than the central bank rate.
Importers of raw materials for export-oriented industries were also facing challenges in global competitions due to the rise in raw material prices, added Hatem.
Asked why the central bank was not adjusting the dollar rate to the market rate, industry insiders said the banking regulator was aware of the situation but had not yet taken any step, which was a political stand.
They also said the central bank had not adjusted the exchange rate to make the taka appear stronger.
The Business Post could not reach Spokesperson for the Bangladesh Bank Md Serajul Islam and its Chief Economist Md Habibur Rahman over phone for comments.
A high official of the central bank’s Forex Reserve and Treasury Management Department told The Business Post the interbank exchange rate fixed by the central bank was not being followed due to the high demand for dollar in the market.
He said at least $5 billion was needed in the market to cool down the volatile situation.
Former governor of the Bangladesh Bank Salehuddin Ahmed said the volatility had not only affected Bangladesh but also the whole world owing to the Russia-Ukraine war and the reopening of the global economy after the Covid-19 pandemic.
He said the central bank had taken measures to tackle the situation but it was too late already, adding the regulator should have depreciated the local currency earlier like other countries.
“The central bank has started depreciating the taka, but the market rate is still very high due to higher demand,” he added.
The economist said the banking regulator only estimates different indicators of the forex market in the monetary policy but it should also review the market and then depreciate the taka further, if needed.
Import value was higher than the volume, which was a problem, he said, adding the central bank and the revenue board should increase surveillance to tackle money laundering in the name of imports.
Forex reserve’s present situation
The country’s foreign exchange reserves are declining day by day due to growing import payments and a downward trend in remittance earnings.
Reserves fell to $41.95 billion on Wednesday after paying the Asian Clearing Union $2.24 billion, as per the central bank data. The forex reserve was $46 billion on February 28 this year.
The government and the central bank have taken measures to address this situation. On Wednesday, the government put public officials’ foreign tours on hold and deferred projects requiring high imports.
On Tuesday, the central bank tightened its rules of luxury and non-essential product imports, such as sport utility vehicles, washing machines, air-conditioners, and refrigerators.
