BB raises dollar rate to Tk100

The Bangladesh Bank has increased the dollar selling rate from the forex reserve by Tk1 to Tk100, according to officials – the 11th hike since July of the current fiscal year.

On Tuesday, the central bank sold $78 million to state-owned banks at the new rate. The rate was increased from Tk98 to Tk99 last on 5 December 2022. In November, the rate was raised to Tk98, following multiple rises in September and October last year.

With a $1.12 billion Asian Clearing Union payment due on Monday, the forex reserve stood at $33.72 billion on Tuesday. The reserve remains under strain thanks to dollar sales by the central bank for essential imports.

A treasury department official of a public bank told The Business Standard on Tuesday that the central bank was not supplying adequate dollars that they needed.

"As a result, we are unable to pay for many import bills. Although the dollar rate was increased on Tuesday, the central bank did not supply it as per our demand," he added.

Sector people said the central bank continues dollar sales from the reserve to the state-owned banks so that they can meet the government import liabilities. But many of the banks do not have enough dollars to open letters of credit (LCs) for small importers.

Dollar sales in the 2022 calendar year totalled to 12.61 billion, as the July-December sales were $7.47 billion. The Bangladesh Bank in FY21 bought around $8 billion from banks due to low imports and high remittance inflows amid the pandemic.

The central bank now labels the dollar selling rate from the forex reserve as "Bangladesh Bank Selling Rate". The Tk1 exchange rate increase is being called an "adjustment with the market". However, if the central bank's selling rate increased earlier, it was considered as "taka devaluation".

Preferring anonymity, a top central bank official said when the central bank increases the dollar selling rate from the reserve, it is one kind of currency devaluation.

"Currently, the Bangladesh Bank is considering increasing the dollar selling rate from the reserve as close to the market rate. This will reduce the tendency of banks to buy dollars from the central bank and possibly would take some pressure off the reserve," he told The Business Standard.

The rate at which the central bank used to sell dollars to banks was called the "interbank exchange rate". Banks usually would exchange dollars among themselves at that price.

But the rate turned somewhat ineffective after the greenback price skyrocketed leading to the ongoing dollar crisis. Subsequently, the interbank dollar exchange also stopped, prompting the central bank to try to deal with the situation by weakening taka.

$1.12b ACU payment due on Monday

The country's reserve will stand at $32.6 billion after the $1.12 billion Asian Clearing Union (ACU) payment on Monday next week, according to central bank sources.

Though both the overall import and import from the Asian countries have been declining gradually since July, according to the central bank data, the country still struggles to put a break on the downturn of the forex reserve – a major economic indicator for a nation.

The ACU payment gateway covers monetary transactions by its member countries for regional imports. The bills are cleared every two months.

The $1.12 billion ACU bill Bangladesh will pay on Monday is for regional imports during the November-December period last year.

The ACU import bill for the May-June period was $1.96 billion, which dropped to $1.75 billion in July-August and $1.32 billion in September-October last year.

At the beginning of the current fiscal year, remittance inflow provided a brief relief to the fast-depleting reserves. In the first two months of FY23, Bangladesh received more than $4 billion in remittances.

But the remittance flow stumbled subsequently following the uniform dollar rate in September. From September to December, the country received an average $1.5 billion per month in remittance, according to the Bangladesh Bank sources.

Amid the ongoing dollar crisis, the country's exports have also been declining for the past two months. Manufactured garments carried Bangladesh to another export income record in December, breaking the previous highest in November.

In December, exports grew by slightly over 9%, reaching $5.37 billion, the highest in a single month.

Mesbahul Haque, the spokesperson and also an executive director of the Bangladesh Bank, said exports and remittances are currently increasing as both Letter of Credit (LC) openings and settlements have decreased compared to previous periods, resulting in normal levels of reserves.

He added that LC settlements in December totaled slightly over $4 billion. "If this trend continues throughout the fiscal year, exports and remittances will surpass imports. In addition, the current reserve would allow for the payment of import costs of approximately $6 billion per month for more than five months."