Bangladesh Bank buys $313m more in second dollar auction in three days

The Bangladesh Bank purchased $313 million through an auction from 22 commercial banks today (15 July), setting a floor price of Tk121.50 per US dollar, in a continued effort to stabilise the exchange rate by restricting appreciation of the taka.

Confirming the rate and dollar amount, Bangladesh Bank Spokesperson Arief Hossain Khan told TBS that the central bank has purchased $486 million through two auctions in the last three days. "These purchased dollars are expected to be added to the country's foreign exchange reserves on Wednesday."

The central bank's intervention comes after the dollar's value plummeted by almost Tk3 within a week. Last Sunday, for the first time in its history, the Bangladesh Bank conducted an auction to buy dollars, acquiring $173 million at a rate of Tk121.50. 

Although banks initially offered to sell dollars to the central bank at Tk120-Tk120.50 on Sunday, the central bank set a higher floor price, signalling its intention to boost the market rate. Today, banks quoted the Tk121.50 rate for dollar sales in the auction.

According to Bangladesh Bank data, the spot exchange rate in the dollar market was Tk121.11 today, with interbank transactions between banks ranging from Tk120.80 to Tk121.50.

Officials from both the central bank and commercial banks said banks were purchasing remittance dollars at Tk119 on Sunday. Following the central bank's higher-priced dollar purchase, the rate began to rise on Monday morning. 

Throughout Monday, banks bought remittance dollars from foreign exchange houses at rates between Tk120.50 and Tk120.80, indicating a maximum increase of Tk1.8 compared to Sunday. Dollar prices in the market remained relatively stable today.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, told TBS, "The central bank, by buying dollars at a slightly higher rate in the auction, has provided an indicative rate to the market. This suggests that the market rate should ideally remain close to the REER [Real Effective Exchange Rate]. 

"This influence led to a slight increase in the dollar's value. However, it is too early to make a definitive statement about the dollar market. We need to observe the market for a few more days."

Another policymaking official from the central bank explained that previously, when the Bangladesh Bank directly determined the dollar rate, it would purchase dollars from banks at a fixed rate. However, as per the conditions of the loan from the International Monetary Fund (IMF), a market-based exchange rate was introduced in mid-May. 

"During the loan negotiation, the central bank had assured the IMF that it would no longer directly intervene in the market as before, and if it needed to buy dollars from the market, it would do so at the market rate. The current auction system for dollar purchases aligns with this commitment," he said.

A managing director of another bank attributed the lack of increased dollar demand to a decline in import LC (Letter of Credit) openings. 

He explained, "Currently, investment is almost non-existent. Without investment, imports of capital machinery, raw materials, and many other goods are slow. A large portion of current imports consists of essential consumer goods, which usually remain static. 

"Furthermore, previous overdue import payments are no longer an issue. Consequently, dollar demand is unlikely to rise rapidly." 

The banker further said, "Our remittance inflow is now very strong, and we are also receiving good export proceeds. Overall, the supply of dollars is excellent. These factors have led to an abundance of dollars in banks, causing the dollar price to fall."

Sheikh Mohammad Maroof, managing director of Dhaka Bank, on Sunday told TBS that Bangladesh is not yet in a position for currency appreciation. "Countries like India and Sri Lanka, our competitors, regularly depreciate their currencies. We had held our currency from depreciating for a long time, which created pressure on the exchange rate."