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Reserves up again despite BB dollar sale

Published : 19 Nov 2022 10:01 PM | Updated : 20 Nov 2022 05:06 PM

Bangladesh’s reserves are increasing again despite the Bangladesh Bank giving a record amount in dollar support to the commercial banks from the reserves.

Experts said the reserves are rising slightly again, thanks to a decline trend on import payments.

According to Bangladesh Bank data, the country’s reserves stood at $34.30 billion till November 17, rising from $34.25 billion on November 09.

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

After that, the forex reserve has continued to fall for some time now due to rising import payment, creating concerns across all sectors of the economy.

However, the Central Bank sold around $ 527 million to the commercial banks to meet higher import payments.

Bangladesh Bank sold $60 million, $109 million, $102 million, $115 million, $69 million and $ 72 million respectively in the last six working days.

The Bangladesh Bank has given support of around $6 billion from its foreign currency reserves in the first four months of the current fiscal year 2022-23, mainly to pay import bills of fuel, fertiliser, food, and pay bills to the Asian Clearing Unit.

Abul Kalam Azad, the central bank spokesperson, said, “The Central Bank is providing dollars directly to pay government import bills. Besides, the Bangladesh Bank's supervision on LC opening continues. There is no barrier in LC opening. The banks are opening LCs subject to dollar supply.”

Meanwhile, Bangladesh Bank already sold a record $7.62 billion directly to commercial banks in the last fiscal 2021-22.

Market analysts said the Central Bank never released such a high amount in the history of Bangladesh in a fiscal year.

Even then, market volatility did not stop, they said, adding that this 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 recently.

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 official of the Central Bank said imports of all kinds of products, including industrial raw materials and capital equipment, increased due to the return of favorable investment climate in the country after the Corona.

Apart from this, the cost of imports was also increasing due to the abnormal rise in prices of all commodities including fuel oil and food products in the world market, he added.

Some steps have been taken by the central bank to reduce imports, he said, adding that the government has also taken some steps.

As a result, imports are decreasing significantly now, he said. 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, if the banks sell dollars at higher prices, Bangladesh Bank intervenes because the banks buy dollars from the central bank at the interbank rate and sell those dollars.

Even selling dollars to the commercial banks is not going to control the price.

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

That is why the supply of dollars in the market has increased. In that scenario, 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.

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, which is still continuing.

Bangladesh Bank is selling the dollars at Tk 97 each while the banks are charging Tk 105 for each dollar for import payments. 

Besides, banks are providing Tk 107 against each dollar for remittance encashment and Tk 107 for export income.

Hafizur Rashid Fakir, the owner of Bijoy Money Exchange, told Bangladesh Post, the US dollar was sold at the rate of Tk 111 per dollar on Thursday.

He mentioned the dollar rate will be reduced in coming days in the open or curb market as the supply of dollars is rising.

According to the central bank, on August 5 last year, the dollar was sold at Tk 84.80 per dollar in the interbank market.

Bangladesh Bank governor Abdur Rouf Talukder has said recently that “There will be no foreign exchange crisis from January 2023, as exports and remittances have become surplus against imports. In fact there is no crisis at present, but we have taken a cautious step to prevent under-invoicing in the country. The central bank is strictly monitoring to prevent ‘hundi’. As a result, over invoicing (showing higher prices) and under invoicing are reduced to zero.”