BB buys more dollars in auction. How it’s impacting economy?

Infographic: TBS

In a strategic move to curb the depreciation of the US dollar against the taka and revitalise the remittance and export sectors, the Bangladesh Bank has purchased $539 million through four auctions in less than a month.

According to central bank data, it bought $45 million at a rate of Tk121.35-121.50 in an auction held yesterday. This follows a purchase of $10 million on 23 July at a cut-off rate of Tk121.95, marking a reduction of at least 45 basis points in the rate.

This series of interventions began on 13 July, when the central bank bought $171 million at Tk121.50 in a historic first-ever dollar auction. This was followed by another purchase of $313 million at the same rate on 15 July. The central bank is buying dollars to set a signal rate for the market, preventing a rapid depreciation of the dollar, officials say.

A senior official from the central bank's auction committee told TBS yesterday that banks had offered to sell nearly $100 million, but the central bank bought a specific amount based on market conditions. 

The official added that both a sharp rise and a sharp fall in the dollar rate are unfavourable. "We are taking necessary steps to keep the exchange rate stable to support our exporters and remitters," the official explained.

A deputy managing director of a leading private bank commented that the banking sector is currently experiencing a higher-than-needed inflow of dollars. 

He explained, "We are receiving an average of $2.5 billion in remittances and exporting $4 billion each month, bringing our monthly inflow to around $6.5 billion. In contrast, our monthly import bill has dropped to $4-4.5 billion, as investment-related imports have decreased. 

"This excess inflow is causing the dollar rate to fall, and the central bank's market intervention is preventing a sharp decline."

Experts welcome intervention

Economists and banking experts have welcomed the central bank's cautious approach.

Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bank Bangladesh, has expressed strong support for the central bank's recent initiatives to stabilise the foreign exchange market.

In an interview with TBS, he said, "By purchasing US dollars from the market through auctions, the central bank is incentivising remittance flows through formal channels while preserving export competitiveness."

He noted that such currency market interventions are standard practice among central banks globally and are often employed to support broader economic objectives

Addressing the risks of a rapidly declining dollar rate, Naser explained, "An abrupt fall in the exchange rate can have unintended consequences. For example, when the dollar weakened significantly in July, remittance inflows through banking channels dropped noticeably, signalling a rise in informal transactions via hundi. 

"Moreover, exporters, who often set prices based on forward-looking exchange rates, face serious losses when the actual rate declines unexpectedly. Hence, maintaining exchange rate stability is vital for both remittance and export sectors."

Fahmida Khatun, executive director of the Centre for Policy Dialogue, also backed the central bank's approach, noting that Bangladesh's foreign exchange market is not yet mature enough to operate without regulatory oversight. 

She believes the central bank's action is a "precautionary measure to stabilise the market."

Fahmida emphasised that many developing economies employ similar strategies. "If the dollar rate is high, it encourages remittance and export earnings. If it's too low, imports rise. A balanced approach is the hallmark of sound monetary policy," she added.