Make inter-bank forex market vibrant
The Association of Bankers, Bangladesh (ABB) yesterday urged the central bank to make the inter-bank foreign exchange market vibrant in order to ease the ongoing forex pressure in the financial sector.
"Creating confidence among banks about the platform is important to activate the market," said Selim RF Hussain, chairman of the ABB, a platform of managing directors of all banks in Bangladesh.
"Banks will buy and sell US dollars among each other through the platform if they have confidence in it."
He came up with the suggestion at a press conference at the head office of Brac Bank in the capital.
Hussain, also the managing director of Brac Bank, said confidence would receive a boost if no one intervenes in the market.
A number of officials of the BB and commercial banks have recently alleged that the central bank frequently intervenes in the forex market in a bid to keep the exchange rate of the taka against the US dollar artificially high.
The exchange rate of the local currency stood at Tk 94.70 per USD in contrast to Tk 84.80 a year ago.
This means the taka has depreciated by 11.67 per cent in the inter-bank market alone in the last one year.
But importers are now counting Tk 105-106 to purchase a dollar from banks, a gap that has rendered the inter-bank rate ineffective.
Bankers say there is a large gap between the inter-bank rate and the rate quoted by banks. So, banks are not encouraged to take part in trading through the platform.
The central bank frequently sets the inter-bank exchange rate through verbal instructions. Had the central bank refrained from intervening in the forex market, the country would have been able to manage the ongoing volatility in the foreign currency market in a better way, they say.
"The inter-bank platform should be operated based on demand and supply of the greenback," said Hussain.
He, however, admitted that it was difficult to follow a fully floating exchange rate between the dollar and the taka.
"Developed countries even manage their floating rates in various ways. But there is a question over how much you should manage the rate," he said.
Hussain hoped that the ongoing pressure in the forex market would ease in the next two-three months.
The forex market has become volatile as Bangladesh's foreign exchange reserves have fallen at a faster pace in recent months due to blistering import payments as the economy rebounds from the pandemic-induced slowdown.
The reserves stood at $39.49 billion yesterday compared to $46.15 billion in December.
Between July and May of the fiscal year of 2021-22, import payments went up by 39 per cent year-on-year to $75.40 billion.
Hussain welcomed the latest central bank's circular on loan rescheduling.
"The new policy will help banks strengthen their credit discipline."
Experts, however, have lambasted the central bank initiative, saying it has relaxed the loan rescheduling rules to a largely extent.
The relaxation would allow defaulters to repay term loans over a maximum period of eight years whereas it was previously two years. Besides, they will be able to reschedule their non-performing loans four times whereas previously they could do so three times.
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