Central bank pumps over $4b into banks

The Bangladesh Bank pumped nearly $4.45 billion into banks from its forex reserves between July and October 19 of FY23, in a bid to tame the country’s volatile foreign exchange market.

Central bank officials say the regulator sold $102 million to banks from the forex reserves on Wednesday. Several banks, including Sonali Bank, Janata Bank, and Agrani Bank took greenback support from the regulator at a rate of Tk 96 per USD.

A Bangladesh Bank official, preferring not to be named, said after allowing a floating exchange rate of the greenback, the central bank is currently providing USD support to banks just to cover government import payments.

Banks, especially the state-run ones, are taking USD support from the regulator for settling import payments of Bangladesh Petroleum Corporation, Bangladesh Agricultural Development Corporation, and Bangladesh Chemical Industries Corporation, along with other agencies.

Due to the continuous USD support of the central bank, the foreign exchange reserve continues to dip. The forex reserves stood at $36.20 billion on Wednesday, down from $46.12 billion posted on the same day last year.

The highest inter-bank exchange rate on Wednesday stood at Tk 102.72 per USD, comparatively lower than that of the previous month, when the inter-bank exchange rate for the greenback peaked at Tk107.70.

The Bangladesh Bank in August of last fiscal year started injecting USD into the forex market when banks began facing shortages of the foreign currency due to growing import payments, triggered by economic recovery from the Covid-19 crisis.

During the July to August period of this FY, letter of credit settlement – also known as actual import payment – stood at $15.29 billion, up by 42.31 per cent year on year, according to the central bank data. The currency crisis intensified just a few months later when Russia invaded Ukraine in February this year, further disrupting the global supply chain.

The central bank injected a record $7.62 billion from its reserves to banks in the last fiscal year.

Zahid Hussain, former lead economist of the World Bank Dhaka Office, said the ongoing forex crisis will not end anytime soon, adding that if the average import costs hit $7 billion per month, then the import cost of three months would be $21 billion.

“The usable forex reserve of Bangladesh is now at $28.85 billion, which clearly indicates that we are still in a crisis. The country’s overall balance remains negative. The overall decline of export orders is also a matter of concern,” he stated.