Demand-supply to determine exchange rate

Bangladesh Bank yesterday claimed that it would allow the market, meaning demand and supply, to fix the exchange rate of the US dollar against the local taka.

Earlier in May, the central bank had taken the same decision but later backtracked from it to artificially keep the local currency strong against the dollar.

Md Serajul Islam, spokesperson of Bangladesh Bank, said the exchange rate would be fixed by banks, a method now followed across the globe.

The Association of Bankers, Bangladesh (ABB), a platform of managing directors of banks in Bangladesh, and the Bangladesh Foreign Exchange Dealers' Association (Bafeda), a platform of banks, will determine the rate, he said.

Islam confirmed this while speaking to The Daily star after a tripartite meeting among the central bank, ABB and Bafeda.

The meeting was held at the central bank headquarters and presided over by Bangladesh Bank Governor Abdur Rouf Talukder.

Banks in the country have to buy and sell dollars based on an interbank exchange rate of the greenback set by the central bank.

As per the banking norms, lenders are allowed to offer Tk 1 less from the interbank rate while buying dollars from exporters. They can sell the greenback to importers, adding Tk 1 to the interbank rate.

But most of the banks have not followed this in the last couple of months, sometime after the volatility in the foreign exchange market resulting as an aftermath of the Russia-Ukraine war had subsided.

Some banks yesterday sold each dollar for up to Tk 107, meaning that they are still not following the banking norms.

A treasury official of a bank, on condition of anonymity, said it was not possible for any lender to follow the interbank rate due to the scarcity of the greenback in the market.

The taka lost its value by 11.6 per cent against the dollar in the interbank market over the past year. Each dollar traded at Tk 95 on the platform yesterday.

Had the platform been free of the central bank's intervention, the exchange rate would have been much higher as it would have been determined by demand and supply.

Selim RF Hussain, chairman of the ABB, said both Bafeda and the ABB would arrange a meeting in a day or two to decide on ways to keep the exchange rate stable.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said banks had discussed at a meeting with the central bank on ways of making a market-driven exchange rate effective.

"A positive development will emerge in the quickest possible time," he said.

Mashrur Arefin, vice chairman of the ABB, said the ABB and Bafeda would work to create a market-driven exchange rate under the guidance of the central bank.

The volatility in the market has had an adverse impact on the country's foreign exchange reserves due to rising import payments.

The reserves stood at less than $39 billion yesterday in contrast to $46.19 billion in September last year.