BB sells $1.22b in 6 months to prop up taka

The central bank has continued to sell dollars to banks to meet their soaring demand thanks to a spike in import payments.

As of yesterday, the Bangladesh Bank sold $1.22 billion to banks this fiscal year to arrest the depreciation of the local currency against the greenback.

In fiscal 2017-18 the central bank had injected $2.31 billion -- the highest since fiscal 2009-10.

Economists and bankers said the country's foreign exchange market might see more turbulence in the days ahead because of the rising trend of imports.

Despite the bulk injection of the greenback, the taka continues to depreciate: the inter-bank exchange rate stood at Tk 83.95 per USD yesterday, up from Tk 83.90 on January 3.

The interbank exchange rate was Tk 82.80 a dollar on January 14 last year.

The lenders were also forced to revise the selling rate for bills for collection (BC) -- which is the rate at which banks make import payments -- several times in the last five months with a view to avoiding losses from the foreign exchange business.

In October last year, banks set the BC selling rate at Tk 80.80, which shot up to Tk 83.95 this month. Southeast Bank is facing hardship in following the cap of the BC selling rate imposed by the central bank because of unavailability of the dollars needed to settle import payments, said M Kamal Hossain, its managing director.

“The upward movement of remittance has given an upbeat mood to the economy, but my bank has to offer higher commission to remitters, which has added extra costs.”     

But if the upward trend of exports continues there will be no acute crisis in the foreign exchange market, Hossain added.

“Import payments were higher than the export earnings in recent months -- this has created an imbalance in the market,” said Salehuddin Ahmed, a former central bank governor.

In the first five months of the fiscal year, export earnings stood at $16.77 billion against the import payments of $23.43 billion.

Remittance has recently bounced back but the inflow is yet to reach a satisfactory level, Ahmed said.

Between July and November, remittance increased 9 percent year-on-year to $6.28 billion, according to data from the central bank.

The central bank should intervene in the currency market in a balanced manner in order to ensure a well-structured macroeconomic situation, Ahmed said.

“For long it has either been pumping dollars in the market or purchasing those from banks, which is not a good practice.”

Dollar injection in the market should be stopped for the time being as the peers of the taka have recently depreciated largely.

“The country's exports will decline because of the higher exchange rate of the taka against its peers,” Ahmed added.

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, however, said the central bank's stance on injecting dollar into the market was appropriate in the interest of importers.

A lion's share of the country's import payments is for industrial raw materials, capital machinery and essential consumer goods.

“So, the depreciation of the local currency will not bring any good for the economy,” Rahman said. 

The volume of foreign exchange reserves is now sufficient to make import payments of more than five months, which is ideal for any economy, he said, adding that the pumping of dollar will not create any difficulties later on.

On January 9, foreign exchange reserves stood at $31 billion, down $32.07 billion a year earlier, according to central bank statistics.