Cenbank now spurring higher remittance rates to build reserves

As remittance dollar rates decline due to an increase in supply and a decrease in demand, the Bangladesh Bank has been persuading banks to purchase dollars at higher rates.

This initiative aims to bolster supply, as the country must maintain foreign exchange reserves in line with the recommendations by the IMF linked to the $4.7 billion loan package.

The development came two days after exempting treasury heads of 10 banks from fines imposed for purchasing dollars at prices higher than the central bank-set ceiling.

The IMF target for net reserves is $19.27 billion at the end of March 2024. The gross reserves stood at $20 billion as of 14 March, according to the IMF's Balance of Payments and International Investment Position Manual (BPM6) calculation method.

As per the BPM6, the net reserves will be lower by $4 billion from the gross calculation, said a central bank official, who spoke to The Business Standard on the condition of anonymity.

According to treasury heads at several banks, foreign exchange houses are currently quoting remittance rates of Tk112-112.50. Remittance dollars are available at this rate in Qatar, Malaysia, Singapore, and many other countries. Rates are slightly higher in Dubai, where exchange houses were asking for Tk114-115 per dollar on 21 March.

Additionally, on 18 March, some banks purchased remittances from foreign exchange houses at Tk114-114.50. However, exchange houses were offering remittance rates at Tk120-122 per dollar at the end of February.

For the past few months, the rates for remittance and import bill settlements have remained unchanged at Tk109.50 and Tk110, respectively. Although very few banks are selling at this fixed rate, the actual market rate is Tk6-8 higher than this.

The managing director at a state-owned bank told The Business Standard on condition of anonymity, "We are purchasing remittances at the fixed rate. Previously, our bank was ranked among the top five in terms of remittance collection, but now it is not even ranked among the top 20. This is because many banks are offering remittance rates higher than the fixed prices."

"The deputy governor of the Bangladesh Bank's respective department has now verbally instructed us to collect remittances at a higher rate than the fixed rates," he asserted.

The managing director of a private bank also confirmed the central bank's instructions to TBS.

He said, "The deputy governor has told us to buy dollars at a higher price in the month ahead of Eid. We will inform our owners about this matter. If they agree, we will think about it."

A senior official of the central bank told TBS that if banks bring in more dollars at a higher price, the central bank can buy from them. This will help increase the net reserves. Besides, taking advantage of the swap mechanism will increase the gross reserve of the central bank.

The Treasury head at a private bank told TBS, "The dollar rate is high in the market because of capital flight abroad. When dollars were siphoned off, the rate was Tk90-95. Now, if those dollars are brought back to the country, they can be exchanged for Tk10-15 more per dollar. Moreover, if banks purchase dollars at a higher price, it benefits dollar launderers."

He added, "Our remittance inflows in February were $2.16 billion. However, this month, remittances have not reached this level. Additionally, remittances did not come at this rate even during the Covid pandemic."

Rate for remittance dollars on the easing  

Banks have been unable to purchase remittances at fixed prices for the past year. Over the last 12 months, the official rate for remittances has ranged between Tk105 and Tk109.50, but banks have had to procure remittances from exchange houses at a higher rate of Tk10. Banks adhering to the fixed prices have only been able to acquire very modest amounts.

An official from the international division at a private bank noted that generally, the rate decreases as the demand for dollars decreases.

"Earlier, we had to make import payments of $7-8 billion every month. Now it is down to $4-4.5 billion. As a result, the dollar rate for our remittances is decreasing slightly," he added.

He predicts that the dollar rate will likely reach Tk110 in the next one or two months.

As the country's dollar crisis has eased, the position of the central bank is also relaxing. The Bangladesh Bank has exempted the treasury heads who were penalised for buying and selling dollars at a price higher than the fixed price in October last year.

According to data from the central bank, banks have been collecting remittances at an average rate of $2 billion from October 2023 to February 2024.

Additionally, bankers believe that the amount of remittances coming in March will exceed $2.5 billion.

Furthermore, the net open position of foreign currency for banks is expected to be $400 million positive at the end of February, although two months ago, it was more than $300 million negative for the banks.