Cenbank holds $17.7b in net reserves, nearly meets IMF's benchmark

The central bank's net reserves reached about $17.7 billion on 28 December, almost meeting the International Monetary Fund's benchmark for Bangladesh to receive the third tranche of a $4.7 billion loan package, a high official of the central bank said.

To meet the conditions set by the IMF, Bangladesh Bank aimed to maintain a net reserve of $17.78 billion by December 2023. 

Despite a crisis in reserves, the central bank sold a record $6.7 billion to banks in the six months (July-December) of the financial year 2023-24. The dollar sales during the same period of the previous fiscal year were $7.8 billion. 

Bankers said that there was pressure on the central bank to meet the import obligations of daily necessities, including oil, gas, and fertilisers. On the other hand, it had to collect dollars in different ways to maintain reserves according to the IMF's conditions.

A senior official of the central bank said that the central bank bought $1.04 billion from the banks in the six months of FY24, which was very limited in the previous fiscal year. 

He mentioned that most banks are experiencing a shortage of dollars. Yet, the Bangladesh Bank managed to buy dollars from different banks to uphold the foreign exchange reserve.

Meeting IMF condition

As of 28 December, the central bank held foreign exchange reserves of $21.7 billion based on the BPM-6 standard. 

When calculating the IMF net reserve, obligations to the Asian Clearing Union (ACU) and bills due within a year had to be excluded. This resulted in a difference of $4 billion between the gross reserve and the net reserve.

Spokesperson of Bangladesh Bank Md Mezbaul Haque said one of their key responsibilities is maintaining forex reserves. They engage in both selling and buying dollars from banks. 

Regarding how they acquired dollars amidst a shortage, he said, "Some banks have foreign currency but face difficulties in cash transactions. They sold it to the central bank." 

On 26 December, the central bank bought $200 million from Islamic Bank and another $100 million from various banks, totaling $300 million.

Over the past three years, the Bangladesh Bank has consistently sold dollars from reserves to commercial banks. In the fiscal year 2022, they sold $7.62 billion, and in FY23, they sold $13.58 billion to settle import bills.

Dollar rate discrepancy

Presently, banks are selling dollars to the central bank at Tk110, while collecting remittance dollars at Tk109.50. 

Additionally, banks can offer a maximum incentive of 2.5% from their own funds on the collection of remittance dollars. 

Importers often have to buy dollars at a higher price than the declared rate, although some influential traders manage to secure dollars for imports at a slightly lower rate.

As per the directives of the Bangladesh Foreign Exchange Dealers Association (Bafeda), banks are supposed to buy remittance dollars at a maximum rate of Tk109.50. However, several banks have collected remittances at rates ranging from Tk120 to Tk122.

The dollar shortage in scheduled banks is evident in the Net Open Position (NOP) holdings of foreign currencies. Currently, around 20 banks have NOP short positions. 

The head of the treasury department at a state-owned bank explained that the high dollar rate is not solely due to banks being in long positions. Many banks have also reduced imports due to a limited flow of dollars, resulting in a long position due to decreased import liability. 

A bank's Foreign Exchange Net Open Position (NOP) is the difference between its foreign currency assets and liabilities at a specific point in time. A long NOP occurs when assets exceed liabilities, while a short NOP occurs when liabilities surpass assets.