Cenbank buys $50m from banks after 3-month pause amid falling rate

The Bangladesh Bank today (1 September) resumed buying dollars from commercial banks after a three-month gap, purchasing $50 million at Tk122.75 as ample market liquidity and weak demand pushed the exchange rate lower.

The purchase from four commercial banks was the central bank's first since 20 May, a senior Bangladesh Bank official confirmed to The Business Standard.

The move came after the dollar rate had fallen amid strong supply of foreign currency and easing demand for import payments. Commercial banks were buying dollars from remittance houses at Tk122.30-Tk122.40 this morning, while settling letters of credit (LCs) at Tk122.50-Tk122.60.

A senior commercial bank official said the central bank's purchase at Tk122.75 sent a signal that it would support the dollar rate at that level.

Bankers had expected the Bangladesh Bank to intervene when the rate fell two weeks ago. However, another $100 million in government LC payments was added after 20 August, taking outstanding government payment obligations above $1 billion. The central bank may have held back from buying dollars because of the increased payment pressure, the official said.

Another senior banker said sharp fluctuations in the exchange rate over the past 15 days had left banks and clients uncertain about where the rate would settle. Many clients were seeking forward bookings, he added.

High supply, weak demand

Commercial banks currently have ample dollar liquidity, while pressure from LC payments has eased. Weak private-sector credit growth has also reduced demand for foreign currency.

As a result, excess supply amid subdued demand has been pushing the dollar rate down. Bangladesh Bank's latest purchase appears aimed at preventing a further decline.

Demand for dollars could rise somewhat next month as the Bangladesh Petroleum Corporation (BPC) has some payments due, a banker said.

Purchase information came late

There was no prior indication in the market that the Bangladesh Bank would purchase dollars today, according to a senior banker. Commercial banks were informed around 1pm.

Normally, the central bank informs banks of such purchases by around 11:30am. As a result, banks bought remittance dollars at lower rates in the morning and settled LCs at Tk122.50-Tk122.60.

Dollar rate rises after purchase

After the Bangladesh Bank bought dollars at Tk122.75 in the afternoon, several commercial banks raised their rates for remittance collection and LC settlements to the same level.

The purchase effectively pushed the dollar rate higher and signalled that the central bank was prepared to support it at Tk122.75.

The dollar rate had been falling again since Sunday. With no earlier intervention from the Bangladesh Bank, there had been little clarity in the market over where the rate would settle, he said.

The dollar rate climbed as high as Tk123.65 late last week after falling to Tk122 about two weeks ago, reflecting unusually sharp fluctuations over the past 15 days.