Dollar crunch forces cenbank to sell $3.75b from reserves in 3 months
Although the country's forex reserves have been decreasing for the past one and a half years, the Bangladesh Bank could not stop selling the greenbacks from the reserves due to the dollar crisis in the market.
According to the central bank, $3.75 billion was sold from reserves to state-owned banks in the first three months of the current fiscal year 2023-24. The central bank had to support dollar-starved banks in settling international payments.
Earlier, the central bank had sold $13.58 billion from reserves in FY23.
The continuous dollar selling by the central bank is putting huge pressure on the dwindling reserves, which are already wobbling from sluggish export earnings and decrease in remittance inflow. The country's forex reserves fell to $21.05 billion at the end of September.
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A senior official of the central bank told TBS that the dollars from the reserves are used in the payment of letters of credit (LCs) of imported goods including fuel, fertiliser and daily necessities. Support from the reserves to banks increases the ability of commercial banks to open LCs, he said.
According to central bank data, the country had to spend $16.14 billion in the July-September period.
"We have a lot of payment pressure," said a treasury department official of a state-owned bank.
"We are not getting the amount of dollars we want from the central bank. However, the central bank is trying to support us. On the other hand, we are receiving less remittances due to following the dollar rate declared by Bangladesh Foreign Exchange Dealers' Association (Bafeda) without letting it be determined by the market," he stated.
Currently, the central bank is keeping the dollar rate at Tk110.50 for sale of dollars from reserves. Again, as per the Bafeda decision, the commercial banks can sell a dollar at a maximum rate of Tk110.50.
Zahid Hussain, former lead economist of the World Bank Dhaka office, said that the demand for dollars is much higher than the supply due to the fact that the exchange rate of the dollar is not market-based. Therefore, after selling dollars from reserves, there is a shortage of dollars in the market, he said.
"The market-based rate of the dollar must be done, but we have to see when the central bank will do it. Our reserves are constantly decreasing. The central bank is trying to manage the situation by holding the dollar rate and selling dollars from reserves to meet demand. But we have to keep in mind that reserves are not infinite. Therefore, to prevent the fall of reserves, the dollar must be market-based."
This economist went on to say, "We have noticed that when the central bank tightened the dollar rate, the remittance inflow decreased a lot. Remittances fell to $1.34 billion in September as the central bank took a tough stance on banks not to pay higher dollar rates on remittances. But in July, due to lack of such strictness, remittances came in around $2 billion."
