Forex reserves dipping alarmingly

Bangladesh’s foreign exchange reserves – which have been on a downward trend since the last several months – continue to fall mainly due to the growing import payments and shrinking remittance earnings.

On Tuesday, the country’s forex reserves hit $41.44 billion, down by 10.20 per cent in the last six months. The reserve was $46.15 billion in December last year, shows data from the Bangladesh Bank.

Bangladesh’s forex reserves stood at $42.20 billion on May 31 and $41.70 billion on June 8 this year. The country’s reserve is falling sharply in recent times mainly due to the central bank’s USD selling spree.  The banking regulator has been selling USD every day this month.

On Tuesday, the Bangladesh Bank sold $68 million to banks from its reserve for meeting the growing demand of USD to settle import payments, a senior official of the central bank told The Business Post.

During August to June 14 of this FY, the central bank injected around $7 billion to the banking sector, which is the highest in the country’s history. Despite injecting USD in the market, the local currency depreciated by 7.90 percent to Tk 92.80 per USD in the last six months.

The Taka depreciated by 30 paisa against the American greenback on Tuesday. On that day, the inter-bank exchange rate stood at Tk 92.80 per USD, up from Tk 92.50 in the previous working day.

This is the 14th depreciation of Taka against the US dollar in 2022.

Industry insiders said the central bank is unable to tackle the depreciation of local currency despite injecting USD in the market, mainly due to the growing import payments and falling remittance earnings.

Settlement of letters of credit (LCs), also known as actual import payment, stood at $67.86 billion during the July to April period of this FY, up from $45.77 billion in the same period of previous fiscal year.

Bankers said import payments have increased owing to the price rise of commodities and fuel in the global market, triggered by the Russia-Ukraine war. The increased transportation cost after the pandemic is another reason behind the growing import payments.

Bangladesh received $19.19 billion as remittance in the eleven months of the current fiscal year (July-May), 15.94% lower than the same period of previous fiscal year.