BB buys $134m in second auction this week to stabilise dollar

To stabilise the exchange rate, the Bangladesh Bank purchased dollars from commercial banks for the second time this week. On Thursday, it bought $134 million at Tk 122.29 per dollar. 

By buying dollars at this rate, the central bank has sent a signal to the market that the dollar rate will be at least Tk122.29 or higher.

With this, the central bank has purchased a total of $188 million through two auctions this week. Earlier, on Sunday, it had bought $54 million at Tk 122.25 per dollar.

So far this year, the central bank has purchased $2.17 billion from commercial banks through auctions.

Infographics: TBS

Bankers and economists say the dollar is falling primarily because supply exceeds demand. Currently, there is lower payment pressure, and remittance inflows are high, so banks have more dollars than needed. 

At the same time, domestic businesses are not investing, which has reduced imports, especially of capital machinery. By the end of October, private sector credit growth was only 6.23%, a record low. 

Additionally, expatriates sent $2.89 billion in November, the third-highest remittance this year, further adding to the dollar supply in banks.

Mohammad Akhtar Hossain, chief economist of Bangladesh Bank, said, "Buying dollars from commercial banks increases taka liquidity in the market, but it does not drive inflation. Currently, credit distribution is low, so the funds commercial banks receive are being invested in treasury bills and bonds, effectively returning the money to the government."

"When supply increases along with demand, inflation does not rise. Since Ramadan, the month of fasting, is approaching, the demand for taka will go up, so there is no fear of inflation. Banks are trying to earn profits from the surplus money they are receiving," he added.

Banks earn more by selling dollars

Economists and treasury heads say that commercial banks earn higher profits by selling dollars to the central bank rather than holding onto them.

Akhtar Hossain said, "Dollar supply in banks is increasing, so they are selling dollars to the central bank. Selling dollars instead of holding them brings money into the bank. If that money is invested in treasury bills and bonds, the returns are higher. Therefore, when the central bank buys dollars, banks benefit, and at the same time, foreign reserves also increase."

A senior official from a private bank added that a significant portion of banks' profits comes from their non-operating activities.

Forex reserves rising

By buying dollars from commercial banks, the central bank is also boosting the country's foreign currency reserves. According to Bangladesh Bank data, reserves stood at $26.51 billion as of 1 December. Economists and bankers believe that higher reserves send a positive signal to donor agencies.

Mohammad Ali, managing director & CEO of Pubali Bank PLC, said, "There is a dollar surplus in the market. Our bank and several others are selling dollars to the central bank. JP Morgan, which provides us with banking services, is also getting a signal that Bangladesh's dollar reserves are strong. In addition, international donor agencies are aware that the country's reserves are in good condition."

He added, "Market liquidity is around Tk3 trillion, with an additional Tk2 trillion outside the market. Previously, when we bought dollars from the central bank, the money went out to the central bank. Now, money is coming into commercial banks when dollars are sold to the central bank."