$3b pumped into banks in two and half months

The Bangladesh Bank pumped nearly $3 billion into banks in just the first two and half months of FY23, in a bid to cool down the volatile foreign exchange market.

Despite allowing a floating exchange rate, the regulator is still selling USD to banks from its forex reserves, a senior official of the central bank told The Business Post seeking anonymity.

During July to September 15, the banking regulator sold $2.95 billion to banks from, show the Bangladesh Bank data. The official said now the central bank is currently providing USD support to banks only for covering government import payments.

After allowing a floating exchange rate on September 12, the central bank sold around $40 million to $60 million to banks every day at the rate of Tk 96 per USD. The highest inter-bank exchange rate till date was recorded on Thursday at Tk 106.90 per USD.

The regulator sold $37 million to banks last Thursday, insiders say.

Banks – especially the state-run ones – are taking USD support from the central bank for settling import payments of Bangladesh Petroleum Corporation (BPC), Bangladesh Agricultural Development Corporation (BADC), Bangladesh Chemical Industries Corporation (BCIC) and other government agencies.

The Bangladesh Bank in August last fiscal year started pumping USD to the forex market when the banks began facing USD shortages due to the growing import payments, triggered by economic recovery from the Covid-19 crisis. This crisis intensified just a few months later when Russia invaded Ukraine in February this year. The war further disrupted the global supply-chain, which in turn caused the food prices to skyrocket in the international market.

As a result, Bangladesh’s import payments rose by 46.15 per cent to $83.68 billion in last fiscal year, shows BB data. The Bangladesh Bank injected a record $7.62 billion from its forex reserves to banks in FY22.

Due to the continued USD selling spree of the central bank, the foreign exchange reserves of Bangladesh dipped to $37.10 billion on Thursday, compared to $48.11 billion posted in the same month last year.

Central bank officials said the floating exchange rate was introduced mainly to reduce the pressure on forex reserves. After this decision, commercial banks resumed USD transactions in the inter-bank market after five months, this pushed up this particular rate.

Bankers welcomed the regulator’s latest decision, but industry insiders claimed the move further burdened importers as the USD rate for import settlements has gone up. On Thursday, most of the banks charged the highest ever at Tk 109 to Tk 110 per USD for import settlements, while inter-bank exchange rate stood at Tk 106.90 per USD.