Cenbank sells $11.5m from reserves to banks in first open auction

The Bangladesh Bank has, for the first time, sold dollars from its foreign exchange reserves to commercial banks through an auction, aiming to contain a recent rise in the exchange rate.

The central bank sold $11.5 million to six banks yesterday (14 September) against a $20 million target, at rates ranging from Tk122.80 to Tk123.35 per dollar. The sale met about 58% of the target, suggesting relatively weak demand.

A senior Bangladesh Bank official said the central bank intervened to prevent the exchange rate from rising further. He said the move also signals that the Bangladesh Bank may sell dollars when demand pushes up the rate and buy them when foreign currency inflows increase.

The Bangladesh Bank had previously sold reserve dollars during the foreign exchange crisis that began in mid-2022, but directly to selected banks for specified customers rather than through an open auction. 

A senior commercial banker described that practice as "irrational, inefficient and non-professional" because the central bank decided which institutions would receive dollars.

Yesterday's auction was open to commercial banks, with dollars allocated to the highest bidders. The move came as the LC settlement rate rose to Tk123.45, from Tk123.10 on Thursday and below Tk123 in the previous week.

A senior banker said many banks may not have participated fully because it was the first auction and the process was new. The Bangladesh Bank notified banks after 1pm, by which time many had already arranged dollars for the day's payments and transactions. He expects participation to increase in future auctions.

Earlier this month, the central bank bought $50 million from four banks at Tk122.75 per dollar.

Until now, the central bank had mainly been buying dollars from commercial banks to build reserves rather than selling through auctions.

Dollar rates may ease after BB intervention

Several remittance houses offered dollars to commercial banks at Tk123.40 yesterday morning before raising their asking rate by 20 paisa to Tk123.60, although several banks declined to buy at the higher rate. 

Bankers said the higher offers put upward pressure on the market exchange rate. 

A leading business group told the Business Standard that banks offered it an LC settlement rate of Tk123.45 per dollar yesterday. 

Bankers expect both LC settlement and remittance-house rates to ease today after Bangladesh Bank supplied dollars to commercial banks at Tk122.80-Tk123.35 through yesterday's auction. 

They said remittance houses may find it difficult to sustain the Tk123.60 rate after the central bank's intervention, potentially putting further downward pressure on the dollar.