Bank MDs urge governor to increase rates to boost dollar inflows

The managing directors of five private banks have pointed out several problems in the foreign currency market and suggested increasing the dollar exchange rate to alleviate the crisis.

"Banks are unable to open letters of credit (LCs) due to a dollar crisis. In such a situation, increasing the dollar exchange rate will encourage a higher inflow of dollars," said one of the managing directors during a meeting with Bangladesh Bank Governor Abdur Rouf Talukder on Sunday.

"We have informed the governor that many banks cannot make foreign payments. Additionally, foreign loans are also decreasing," he told The Business Standard, wishing anonymity.

The governor had an hour-long informal meeting, starting at 3pm, with the managing directors of Brac Bank, City Bank, Prime Bank, Mutual Trust Bank, and Eastern Bank to gain insights into the overall market situation in the country amidst runaway inflation and a volatile dollar market.

According to meeting sources, the governor sought input from the country's top bankers regarding the current state of the banking sector and inquired about areas experiencing crises.

Another managing director told TBS that they also informed the governor that several banks had faced a liquidity crisis until June this year, partly due to information about the central bank's dollar purchases and various irregularities. However, they reported that the liquidity crisis has now subsided, except for a few banks.

He mentioned that the central bank plans to reduce budget financing in the current fiscal year, adding, "We have told the governor that we will also give importance to the interest rate in lending to the government. Because the deposit rate is currently around 7/8%. It will be difficult for banks to lend the government at 6/7% with deposits at this rate."

After listening to the managing directors, the governor said the kerb market rate was still higher even when the official dollar rate was Tk89. The dollar has gradually appreciated and is currently selling at Tk109, yet a higher rate is still available in the kerb market, said the managing directors.

"And the kerb market rate is higher for those who do hundi (an informal cross-border money-transfer system that bypasses the legal banking system). So hundi must be stopped by any means," one of the five top bankers quoted Abdur Rouf Talukder as saying.

The governor also mentioned that inflation is attributed to two factors: external and internal. The prices of products are high in the international market, which necessitates selling them at elevated prices in the domestic market. Additionally, if the dollar appreciates, import costs will rise. Therefore, the governor believes that it would be appropriate not to increase the price of the dollar.

Mezbaul Haque, spokesperson for the central bank, told TBS, "Today we had a meeting with the managing directors of five banks and talked about the changes in our CIB (Credit Information Bureau) system."

However, he said the overall economic situation was not discussed.

Earlier on Thursday, the central bank governor held a meeting with Professor Wahiduddin Mahmud, during which the economist suggested that the central bank should refrain from lending money to the government by printing it.

Additionally, Professor Wahiduddin advised the central bank to enhance the proper implementation and monitoring of the policies aimed at restoring the country's economic balance.

On Wednesday, the governor held a meeting with the leaders of the Bangladesh Association of Banks (BAB), a platform comprising bank chairmen.

During the meeting, the governor requested the cooperation of bank entrepreneurs to ensure that banks do not buy and sell dollars at prices higher than the declared rate.