Bangladesh Bank (BB) sold $1.96 billion directly to commercial banks to stabilise the forex market till August 23 in the current fiscal 2023-24.
The Central Bank has been selling dollars from the reserves from the fiscal year 2021-22 to meet the market demand.
The BB already sold a record $13.58 billion to commercial banks to meet higher import payments in the last fiscal. The government and the central bank have taken initiatives to cut imports to reduce the pressure on reserves. Although new LCs (letters of credit) have declined, the cost of foreign exchange has not come down due to pressure to repay earlier liabilities.
Market analysts said the Central Bank never released such a big amount of dollars in the history of Bangladesh in a single fiscal year.
Despite that, market volatility did not stop, they said, adding that the crisis occurred due to the significant rise in demand for US dollars in the inter-bank foreign exchange market as the country’s import demand had picked up.
However, the supply of dollars is less than the demand in the market.
That is why, the Bangladesh Bank is selling dollars from the forex reserves to the banks at inter-bank rates every day.
An official of the Central Bank said that imports of all kinds of products, including industrial raw materials and capital equipment, increased due to the return of a favourable investment climate in the country after the Corona crisis.
He said that apart from this, the cost of imports was also increasing due to the abnormal hike in prices of all commodities including fuel oil and food products in the world market.
“Some steps have been taken by the central bank to reduce imports. As a result, imports are decreasing significantly now. The money market will also return to normal,” he mentioned.
“The central bank’s job is to keep the money market stable. The dollar was bought when there was a supply of foreign exchange in the market.
Now that supply has dwindled, the central bank is selling dollars in line with market demand,” another BB official said.
However, the Bangladesh Bank depreciated taka against the dollar in the last several months to stabilise the forex market. Taka depreciated by about 28.60 percent against the greenback in the last two year.
Market analysts said the central bank usually sells US dollars directly to commercial banks to meet higher demand for the greenback. It is a sign of the economic stability of the country, they added.
Although in the interbank forex market, one dollar now sells at Tk 109.50, the greenback is actually sold at the rate of Tk 113 to Tk 114 in the open or kerb market.
Hafizur Rashid Fakir, the owner of Bijoy Money Exchange, told Bangladesh Post, “The US dollar was sold at the rate of Tk 113-114. The dollar rate will be reduced in the coming days in the open or kerb market as the supply of dollars is rising.” Meanwhile, the BB sold a record $7.62 billion to commercial banks to meet higher import payments in the fiscal 2021-22.
Due to the Corona pandemic, imports fell sharply during the last fiscal year 2020-21, but remittances and export earnings leaped.
That is why the supply of dollars in the market has increased. The central bank bought a record $8 billion in the fiscal year 2020-21 to keep the dollar afloat.
In its continuation, in the first month of July of the last 2021-22 fiscal year, 205 million dollars were bought.
However, since August 20 in the last fiscal, the picture has reversed. As the corona situation began to normalize, imports began to increase rapidly.
Although export earnings increased, remittance inflow continued to decline. Besides, foreign exchange reserves also decreased. Moreover, the dollar also appreciated against the local currency. As part of its move, Bangladesh Bank started selling dollars from August to keep the market stable.
According to the central bank, on August 5 last year, one dollar was sold at Tk 84.80 in the interbank market.
The country’s foreign currency reserves stood at $29.33 billion till August 23, according to the BB data. On August 24 in 2021, the reserves crossed the $48 billion milestone, surpassing all past records.