Home ›› 14 Sep 2022 ›› Front
The Bangladesh Bank has finally adopted floating exchange rate for USD with the aim to reduce pressure on foreign exchange reserves. The decision has already pushed up the inter-bank exchange rate.
A floating exchange rate is a system where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies. This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate.
On Tuesday, following the central bank decision, the average inter-bank exchange rate stood at Tk 103.91 per USD, said a senior official of the central bank.
On that day, the highest inter-bank exchange rate was at Tk 106.15 per USD and lowest was at Tk 101.67 per USD, a senior official of the central bank told The Business Post. The figure stood at Tk 96 per USD on Monday, when the Bangladesh Bank managed this rate.
The official added, “The Bangladesh Foreign Exchange Dealers Association (BAFEDA) is now calculating the inter-bank exchange rate and reporting to the central bank daily. Bangladesh’s foreign exchange reserves are declining, and this prompted the regulator to take the initiative.
Bangladesh on Tuesday sold at $30 million to banks from its reserves to allow settlement of only government imports. The selling rate was at Tk 96 per USD.
Following a central bank instruction, BAFEDA on September 11 sent a letter to the authorised dealer banks, saying that all export proceeds and all inward remittance must be bought at Tk 99 per USD and the greenback are bought from exchange houses at Tk 108 per USD.
The letter added that for importers, the USD selling rate is calculated on the weighted average cost of the above-mentioned two figures and the interbank rate will emerge around this weighted average cost line.
Treasury heads of all banks will report their weighted average costs to BAFEDA by 10am daily. The BAFEDA will then calculate the average of all these rates submitted by the banks. The industry average rate will be the reference rate for revaluation purposes, the letter reads.
After the floating exchange rate of the USD came into effect from Tuesday, inter-bank transactions have resumed after almost five months.
Dhaka Bank sold $3 lakh to other banks at the rate of Tk 106 per USD on Monday.
Speaking to The Business Post, the bank’s Managing Director Emranul Huq said, “BAFEDA is now calculating the inter-bank exchange rate, based on the banks’ buying and selling rate. The floating exchange rate will help stabilise the foreign exchange market.”
Mutual Trust Bank Managing Director Syed Mahbubur Rahman said, “This is good that the inter-bank transaction of USD has resumed after five months. The banks are now trading the greenback at the inter-bank rate of Tk 103 to Tk 106 per USD.
Zahid Hussain, former lead economist of the World Bank Dhaka office, said, “This is a positive sign that the central bank has finally recognised the actual scenario of the forex market.
“However, the central bank allowed the banks to fix the USD rate, which is not a very good sign. The move could allow banks to dominate the forex market like a syndicate.”
The economist added, “Recently, BAFEDA and Association of Bankers, Bangladesh (ABB) fixed multiple USD rates for different segments such as exports, imports and remittance earnings. Multiple rates will create further instability in the forex market.”
Bangladesh Bank’s former governor Salehuddin Ahmed said, “BAFEDA fixed remittance collection rate at Tk 108 per USD, which may impact our remittance earnings in the coming days as Bangladeshi expatriates may get discouraged due to the move.
Multiple USD exchange an issue
“The multiple USD exchange rates against USD could increase the importers’ suffering, and the move could cause the price of essential commodities to go up further in the coming days,” said Zahid Hussain.
A number of importers claimed that some banks are manipulating the forex market to trigger a USD crisis, and using this opportunity to impose a high rate for import settlements. They claimed that the central bank should look into the matter as commercial banks should not push up USD rates exorbitantly against LC (letters of credit) opening.
A senior official of a Chattogram-based industrial group said most banks are charging Tk 107 per USD for opening LCs despite the interbank exchange rate being Tk 103 per USD.
Current situation of forex reserve
Bangladesh’s forex reserves slid to $37.06 billion on last week following the routine payment of $1.73 billion made to the Asian Clearing Union (ACU) against imports.
The forex reserves hit the highest $48 billion in September last year, then gradually started to decrease because of the growing import payments.
