Ease for banks as exchange rate drops

The interbank exchange rate of the US dollar and average dollar buying rates by banks started to decline just a week after the public and private banks took up some special measures in coordination with the central bank.

According to the central bank, banks traded dollars among themselves at a maximum Tk105.50 on Sunday. The price was at Tk106.75 just the previous day.

Bankers said the crisis in the dollar market had eased up slightly, but they wanted to observe for a few more months to say anything concrete.

On 12 September, banks started charging Tk99 for export proceeds while paying Tk108 for remittances. Besides, they adopted the weighted average of for the past five days to determine the dollar rate instead of imposing day-to-day buying and selling rates.

Several sources of the Bangladesh Foreign Exchange Dealers' Association (Bafeda) and the Association of Bankers, Bangladesh Limited (ABB) said streamlining the interbank dollar exchange had been a remarkable achievement in the last one week.

Before the dollar market became unstable, the central bank used to set a dollar rate at which banks would trade the greenback among themselves. Even in the wake of the dollar crunch, the central bank did not update enough the interbank dollar market for the first five months – allowing remittances to remain the key source for banks to procure US dollars.

Foreign exchange dealers and bankers said the interbank exchange has eased up the market pressure to some extent.

According to the Bangladesh Bank, banks traded $16 million on 12 September at Tk106.15. The price rose slightly to Tk106.90 the next day as the trading stood at $35 million.

On 18 September, the dollar stood at Tk105.50, down Tk1.25 from the previous day. The authorities said dollar trading by banks per day also rose in the meantime.

Ahsan H Mansur, executive director of the Policy Research Institute, said allowing multiple rates for US dollars is a wrong decision that cannot last for a long time.

He proposed following the interbank exchange rate as the uniform dollar price. "To encourage the export, exporters could be offered Tk1 less than this rate. At the same time, the central bank should increase the monitoring."

The differences in dollar buying rates between different banks is decreasing slowly, which the banks celebrate as the second achievement of export proceeds and remittance rate fixing.

Data from the foreign exchange dealers' association show the average dollar price was at Tk103.43 on 12 September. On that day, banks bought dollars at a minimum Tk98 to a maximum of 110.18. The gap was more than Tk12.

After a week on Monday, the average stood at Tk102.56. The minimum and maximum dollar buying rates by banks were Tk98.65 and Tk107.92 as the gap narrowed to Tk9.

Commenting that it is not possible to comment on the market stability in such a short period of time, Association of Bankers, Bangladesh Limited Chairman Selim RF Hussain said that stability does not necessarily imply higher or lower dollar rates. Rather it means the rate remains stable for a period of time.

"Our market will take time to be stable," he said.