The central bank purchased greenback worth a record $5.49 billion in the first half of the current fiscal year to keep stable the exchange rate of the local currency.
The previous highest was recorded in 2013-14 when the Bangladesh Bank bought $5.15 billion from local banks.
The central bank was forced to smash all previous records of dollar purchase in just six months in the wake of higher flow of remittance and lower imports caused by the economic slowdown brought on by the coronavirus pandemic.
Although the dollar purchase is helping the export sector and swelling the foreign exchange reserve, the buying spree has flooded the financial sector with excess liquidity. But lower credit demand from borrowers amid the slowdown in business has put an adverse impact on the cost of funds for banks as liquidity has largely remained idle.
The excess liquidity in the banking industry stood at Tk 182,990 crore in October, up 202 per cent year-on-year, data from the central bank showed.
Despite the massive dollar purchase, the central bank has failed to devalue the taka against the American greenback.
The central bank has been intervening in the foreign exchange market since July after the local currency had lost some weight against the dollar.
The interbank exchange rate has been hovering around Tk 84.80 per US dollar since July. The rate was Tk 84.95 on March 25, a day before the country declared a countrywide lockdown to contain the virus.
Had the central bank not intervened in the foreign exchange market, the local currency would have appreciated. Still, the intervention was not adequate, given the exchange rate in other countries.
For instance, the Indian rupee was at 73.12 per dollar on January 11 this year, up from 71.37 on January 1 last year, according to data from the Reserve Bank of India.
"The country would have managed some benefits at this moment if it had depreciated the local currency before the pandemic," said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
Peer countries have devalued currencies significantly in the recent period, he said.
Both the government and the central bank should take initiatives to devalue the taka in the interest of the economy, said MA Jabbar, managing director of DBL Group, a garment exporter.
A team comprising academicians, professionals and businesspeople should be formed to look into the issue, he said.
"Our competing economies have devalued currencies from time to time. So, we should take the issue with the utmost importance," Jabbar said.
More challenges may await the central bank as the dollar may depreciate in the days ahead.
The American dollar faced a 7 per cent drop on a trade-weighted basis last year due to the recession, according to a report of the Financial Times on January 8. It is widely expected that the dollar may depreciate as much as 15 to 20 per cent against a basket of its peers in the next five years.
Remittance may continue its upward trend to Bangladesh in the coming months as the restriction on movement globally has largely broken the global hundi cartel.
The expatriate Bangladeshis have become accustomed to sending money through formal channels, and the trend may continue.
Remittance hit an all-time high of $21.74 billion last year, posting a growth of 18.59 per cent year-on-year.
Although the central bank is on the right track to keep stable the taka by purchasing the dollar, the measure has piled up excess liquidity in the banking sector, said Emranul Huq, managing director of Dhaka Bank.
Most businesses have adopted a "wait and see" approach on expansion because of the economic slowdown, he said.
Md Arfan Ali, managing director of Bank Asia, said it was good for the economy that the foreign exchange reserve had been on the rise thanks to the central bank's intervention.
The reserve stood at $42.97 billion in December last year in contrast to $32.68 billion a year ago.
"The fund can be used properly once the economy rebounds," Ali said. Both exports and imports will swell once the economy makes a turnaround.
In the first five months of the fiscal year, exports grew 0.86 per cent year-on-year to $9.89 billion. Imports dropped 8.84 per cent to $20.24 billion.