Bangladesh's forex market comes under central bank scanner

SIDDIQUE ISLAM | Wednesday, 19 January 2022

The central bank mounts its monitoring of the foreign-exchange market to avert any further volatility as Bangladesh's forex reserves feel stresses, sources say.

Higher import-payment obligations from the side of the economy could possibly add to the pressures on the currency reserves.

As part of the Bangladesh Bank's latest moves, all the commercial banks have been asked to submit reports on all spot deals alongside corporate ones to the department concerned of the central bank by 4:00 pm each workday.

Earlier, the banks were allowed to submit reports on all spot deals among the banks on the inter-bank foreign-exchange market to the central bank on a daily basis.

The central bank issued instructions to this effect on Monday, asking all the managing directors (MDs) and chief executive officers (CEOs) of the banks to submit their reports properly.

"We've expedited our monitoring to know the real situation on the market," a BB senior official told the FE on Tuesday while explaining the main objective of the monetary-policy direction.

He also said the central bank had collected the information on corporate deals only for monitoring purposes.

The latest BB move comes against the backdrop of allegations that some banks are selling the US currency to the corporate entities for settling import-payment obligations by charging higher prices than BC (Bills for Collection) selling rate.

The banks now reported on their BC selling rate at Tk 86.05 each for settling import payments to the central bank regularly.

Some banks, however, had traded the US dollar between Tk 87.50 and Tk 87.80 in the name of 'corporate deal' but the rates were not reported to the central bank, according to market-insiders.

"It's a demand-supply phenomenon," a senior treasury official of a leading private commercial bank told the FE while replying to a query.

He also said some banks had offered higher rates on the US currency to overseas exchange houses for receiving inward remittances to meet their internal foreign-currency requirements.

The banks have offered higher rates on the US dollar to the exporters for maintaining business relations, according to the treasury official.

"Some overseas exchange houses along with exporters are also responsible for creating the recent volatility on the forex market," he notes.

Meanwhile, the local currency maintained a deprecating trend against the US currency in the recent months amid higher demand for the greenback for settling import-payment obligations.

The Bangladesh Taka (BDT) lost its value by 20 poisha on the inter-bank foreign-exchange market on January 6 in such a fall after nearly two months.

The dollar was quoted at Tk 86.00 each on the inter-bank market on the day against Tk 85.80 of the previous working day. It was Tk 85.75 on November 09 last calendar year.

On the other hand, the central bank continues its foreign-currency support to the banks for settling import-payment obligations, particularly for petroleum products, intermediate goods, fuel oils and capital machinery.

As part of such operations, the central bank has so far sold more than $2.60 billion from the reserves directly to the commercial banks as liquidity support for settling their import-payment obligations in the current fiscal year (FY), 2021-22.

However, the single-month import payments hit an all-time high of US$6.0 billion in December 2021 following higher purchase of textile items from the global market to build a satisfactory stock of the capital goods.

Rise in import of capital machinery also pushed up the import-payment obligations during the period under review, according to officials.

The settlement of letters of credit (LCs), generally known as actual import, in terms of value, rose by 8.32 per cent to about $6.0 billion in December 2021 from $5.54 billion in the previous month, according to the BB's latest statistics. It was $5.27 billion in October 2021.

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