BB pumps $6b into banks

The Bangladesh Bank pumped around $6 billion into banks from July to November 17 of this fiscal year to tame the volatile foreign exchange market.

During this period, the banking regulator sold $5.94 billion to banks from its forex reserves so that they can make payments for emergency goods imports, its data shows.

The central bank on Thursday sold $72 million to banks, and the state-run banks are now taking USD support from forex reserves. In the last 17 days of this month, the Bangladesh Bank sold $837 million to banks.

Officials at the Bangladesh Bank said after allowing a floating exchange rate of the greenback, the central bank is currently providing USD support to banks only for covering the government’s import payments.

Banks, especially the state-run ones, are taking USD support from the central bank to settle import payments of Bangladesh Petroleum Corporation, Bangladesh Agricultural Development Corporation, and Bangladesh Chemical Industries Corporation among other government entities.

Bangladesh’s reserves continue to fall due to the central bank’s USD selling spree. The country’s gross forex reserves stood at $34.3 billion on November 17, but usable reserves were $26.3 billion, as per the central bank data.

Gross forex reserves reached a record high of $48 billion in August last year. That month, the Bangladesh Bank started injecting USD into the forex market as banks began facing shortages of the foreign currency due to growing import payments, triggered by the economic recovery from the Covid-19 crisis.

The currency crisis intensified a few months later when Russia invaded Ukraine in February this year, further disrupting the global supply chain.

The Bangladesh Bank data shows between July and October of this fiscal year, letter of credit (LC) settlements stood at $27.94 billion, up from $20.2 billion in the same period last year.

LC settlements grew by 65.96 per cent in October year-on-year.

On the other hand, the opening of LCs did not come down as expected despite austerity measures taken by the government and the central bank.

During the July-October period of FY23, the opening of LCs stood at $24.26 billion, down from $26.04 billion in the same period of the last fiscal year, shows the central bank data.

The Bangladesh Bank injected a record $7.62 billion from its reserves into banks in the last financial year.

Liquidity support for banks

Besides the US dollar support, the central bank is providing liquidity support to banks as most of the lenders are now facing liquidity shortages.

On November 16, the central bank injected Tk 17,106 crore into a number of banks through repo and special liquidity support.

A high official of the Bangladesh Bank said the banking sector is facing a tight liquidity situation as surplus liquidity came down to Tk 1,69,586 in October this year from Tk 2,11,506 crore in January.