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Record $9.2b injected into market this FY

Published : 03 Feb 2023 10:13 PM | Updated : 04 Feb 2023 09:40 PM

Bangladesh Bank (BB) has provided a record amount of over US$ 9 billion dollar to banks to stabilize the foreign exchange (forex) markets.

The Central Bank sold a record amount of $9.20 billion US dollars from its reserve directly to commercial banks to stabilize the forex market till January  in the current fiscal 2022-23.

Md Mezbaul Haque,  Executive Director and spokesperson  of the Bangladesh Bank, said that the dollar crisis has been going on for the last one year due to the war between Ukraine and Russia.

"In addition to discouraging the import of ambitious products, various measures have been taken to overcome the dollar crisis. Still the crisis is not over. For this, Bangladesh Bank is providing dollar support from foreign exchange reserves to meet urgent import obligations," he mentioned.

However, the Central Bank has been selling dollars from the reserves from the last fiscal year 2021-22 to meet the market demand. 

The BB already sold a record $7.62 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, Bangladesh Bank is selling dollars from the forex reserves to the banks at inter-bank rates every day.

An economist said the central bank is making adjustments with the market by increasing the selling rate of dollars from the reserve.

”Currently Bangladesh Bank wants to equalise the central bank's selling rate with the average rate of inter-bank transactions,” he said, adding that is why this rate is increasing.

“It will be good for the overall economy if the central bank's selling rate is brought in line with the inter-bank rate,” he explained.

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 stabilize the forex market.

Taka depreciated by about 25 percent against the greenback in a 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 Tk107, the greenback is actually sold at the rate of Tk 112 to Tk 113 in the open or kerb market.

Meanwhile, in the first six months (July-December) of the current fiscal year 2022-23, Bangladesh Bank sold about $7.47 billion from reserves while in the first six months of FY 2022, the amount of sales was $5.14 billion.

Due to the Corona pandemic, imports fell sharply during the last fiscal year 2020-21, but remittances and export earnings have 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, US$ 205 million 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.

Besides, 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, the dollar was sold at Tk 84.80 per dollar in the interbank market.

The country’s foreign currency reserves stood at $32.19 billion till February 01, according to the BB data.

On August 24 last year, the reserves crossed the $48 billion milestone, surpassing all past records.