Taka weakens further as cenbank seeks to align dollar rates

The central bank has raised the selling rate of dollar from reserves by Tk0.50 to Tk110 in an attempt to align the rate with that in the local market.

Consequently, the taka has depreciated against the dollar four times since July in the current fiscal year. Despite these adjustments, however, the disparity between the market and interbank rates persists, compelling the central bank to actively intervene in the currency market to stabilise it.

The intervention has also had a noticeable impact on the foreign exchange reserves, which dropped below $23 billion on Tuesday.

The central bank pegged the dollar at Tk95 in the first week of September last year. According to the central bank, the dollar's value has increased by about 16% to Tk110 in the past one year.

Since the beginning of July, the Bangladesh Bank has not announced the dollar price separately. In selling dollars from reserves, the central bank follows the dollar rate in the interbank market. As a result, in the first week of July, the taka devalued to the highest value of Tk2.85. Since then, the central bank has been increasing the selling price of dollars from the reserve according to the interbank dollar rate.

The Bangladesh Foreign Exchange Dealers Association (Bafeda) and the Association of Bankers, Bangladesh (ABB) once again adjusted the exchange rate of the US dollar on Thursday. As per an announcement by Bafeda and ABB, the new interbank dollar rate is Tk110 – it was Tk109.50. Exporters and remitters are getting an equal Tk109.50 per dollar, while the rate is Tk110 for import settlement.

As a result, the selling rate of dollars from the reserve has been increased.

A senior official of a state-owned bank said they are not getting enough dollars from the central bank. As per the current status of the reserve, the amount is fine. However, many banks are not following the dollar rate set by the ABB and Bafeda. They are collecting remittance dollars at higher rates. In many cases, it is also charging higher rates to collect dollars of export proceeds. Due to these reasons, they are getting more dollars. In this situation, the state-owned banks are getting less remittance due to compliance with the rules.

"As a result, we are facing problems in paying the government LCs. We have to defer many payments due to not having enough dollars in hand. If the banks pay higher rates like this, our problems will deepen," the banker said.

A senior official of the central bank said 13 banks have been served show-cause notices for charging high rates for buying and selling dollars. The central bank will take further action after receiving their reply. It had planned to reduce the sale of dollars from reserves in the current financial year. But that could not be done as the remittances came in short by about $400 million last August. If remittances do not increase in September, pressure on reserves may increase.

Reserves drop below $23 billion

Despite the increase in prices, the sale of dollars from the reserve did not decrease. According to the central bank, since July of the current fiscal year $2.3 billion has been sold from reserves. Means, the central bank is selling $1.15 billion every month of this fiscal year. In FY23, $13.58 billion was sold from reserves to meet the dollar crunch.

According to IMF's BPM6 guidelines, the new gross reserves of central banks is $22.95 billion. The gross reserves according to the old calculation decreased from $39.60 billion at the end of July last year to $29.1 billion on Tuesday.

Besides, a $1.2 billion Asian Clearing Union (ACU) payment will be made next Thursday. Doing so would bring the reserves down to the $21 billion mark.