Foreign Currency

Feeding dollars into banks mounts pressure on forex reserves

Keeping foreign dealings uninterrupted

BB sells highest amount of greenback to banks in Jan

| Published: February 05, 2024 23:47:50

Forex-strapped banks’ demand for US dollar heightens from the start of the calendar year as the central bank fed into them the highest-ever monthly dollop of $1.60 billion in January, sources said.
Such mounting trend in drip-dollar feeding into the commercial banks has been intensifying the existing pressures on the country’s depleting foreign-currency (forex) reserves, said the sources at the Bangladesh Bank (BB).
They said the commercial bank’s demand for the US currency began rising remarkably from the immediate past month of January mainly because of the increased dollar demand by banks, the state-owned ones in particular, for settling their overseas payment obligations in import of fossil fuels and fertilisers.
Simultaneously, the import demand for key essentials for Ramadan that marks month-long fasting by Muslims, to be observed from upcoming March, started rising, according to them.
Shortly after the Russia-Ukraine war broke out, Bangladesh came under immense pressure so far as its forex reserves are concerned from early last fiscal year (FY’23) because of quick fall of forex holdings with the commercial banks in the wake of significant rise in import costs globally and less-than-expected levels of earnings from remittance and export receivables.
Since then, the central bank, as part of its market intervention, has intensified the sale of the greenback from its reserves to the banks to help them meet their foreign-currency obligations amid forex dearth, the sources at the BB said.
The central bank on average had sold $1.13 billion per month in the immediate-past fiscal year as it handed out a record-high of $13.58 billion to the banks in the FY’23.
According to BB’s recent months’ dollar-sale statistics, the central bank sold $1.15 billion in July of this ongoing fiscal (FY’24) to the commercial banks to assist them in meeting their foreign- currency obligations.
In August, the banks purchased $1.15 billion from the BB. In the months thereafter, the monthly sales of the dollar recorded at $0.97 billion, $1.20 billion, $1.30 billion and $0.97 billion in September, October, November and December respectively.
But in January 2024, the monthly sales volume of the US currency from the BB-managed forex reserves hit an all-time high of $1.60 billion, the sources said.
Seeking anonymity, a BB official said the central bank sold the highest-ever amount of US dollars to the market in a month in January as commercial lenders, especially the public ones, purchased increased volumes of the American greenback to meet their overseas bills to import primary energy, fertiliser and Ramadan-centric key commodities ahead of the month of fasting.
The official says the central bank unrelentingly sells the greenback to the banks from the country’s stock of foreign currencies to stabilise the market amid forex hardship.
“But things started improving as the supply of forex, especially from remittance and export receipts, is in an upward trend. So, there is little to be worried,” the central banker says.
Managing director and CEO Dhaka Bank PLC Emranul Huq says the import payments for Ramadan items started picking up slowly but it hasn’t reached the level yet to impact BB’s dollar sale largely.
He says his one is one of the leading banks in the private sector to handle imports of fertiliser and petroleum products but the private banks can purchase maximum 25 per cent of their forex requirements from the central bank.
“We managed to meet the requirement from the earnings of export, remittance and other options. It is probably the state-owned commercial banks who purchased a large portion of their forex demands from the BB,” Mr Huq adds.
Contacted for his view, professor at the department of Economics of East West University AK Enamul Haque said the central bank probably adopted a go-slow policy in terms of selling the greenback ahead of the just-past general election.
As the elections ended, the country’s noted economist said, the BB keeps unremittingly releasing the American currency for the limited reserves. “It is okay under the current macroeconomic context, but not so in the long-term perspective.”
The economics professor feels that the central bank should leave the exchange-rate affairs to the market, which will ultimately help lessen the pressure on the forex market.
“I came to know that the BB is going to adopt crawling-peg mechanism for fixation of the exchange rate, which will be a right move.”

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