Forex reserves fall below $3b on import pressure

After seven months the country's foreign exchange reserves yesterday fell below $3 billion mark in the face of import pressure.

The foreign exchange reserves came down to $2.98 billion soon after making Asian Clearing Union (ACU) payment.

The forex reserves stood at $3.26 billion on Wednesday just before the ACU payment. The Wednesday's ACU payment of $337 million was the highest in recent times.

The reserves crossed over $3 billion in August last year and since then it maintained the $3 billion figure.

Bangladesh Bank usually has to pay about $200 million to $220 million in the bi-monthly ACU settlement. But the volume started mounting from January this year hitting $300 million.

Maintaining a forex reserve balance to meet three months' import payments is considered safe for a country to continue international trade. But the country currently has forex reserves equivalent to a little less than three months' import payments.

The import volume increased by 23 percent during July-December, 2004 period in comparison to the same period of previous year. The import growth was 19.77 percent during July-December, 2003 against the corresponding period of the previous year.

Bangladesh Bank has taken a number of indirect measures to defuse pressure on reserves and keep value of taka against US dollar stable.

The central bank last week verbally instructed all banks not to buy or sell dollar at more than Tk 63.70. BB also asked the banks to keep call money interest rate at 20 percent or below.

Since the last week's BB instruction, the dollar and call money rates did not cross the mark of Tk 63.70 and 20 percent respectively.

Although central bank intervention in money market is unwanted in the present floating currency regime, a BB source said it is compelled to take indirect action as some financial institutions take volatile money market as a tool for profits.

The BB source said as import and lending activities are going up, it is not unusual to see a volatile foreign exchange and call money market.