BB buys dollars again after two months to maintain rate

After two months, Bangladesh Bank has once again bought US dollars from commercial banks through auctions. The central bank resumed these purchases mainly because the dollar rate had been declining, and it wanted to prevent the rate from falling too far.

The central bank bought $54 million at Tk122.25 per dollar from commercial banks yesterday. With this, Bangladesh Bank's total purchases in the current fiscal year crossed $2 billion as of 30 November.

A treasury head at a private bank said Bangladesh Bank held the auction because the dollar rate had dropped to Tk122.17 on Thursday, signalling to the market that the rate should not fall below Tk122.25.

The last time the central bank bought dollars was on 6 October. It began purchasing dollars through auctions from commercial banks this July. When supply exceeds demand, the dollar price falls; when demand exceeds supply, the price rises.

Bankers have cited several reasons behind the decline in the dollar rate. First, government demand for large external payments has fallen, reducing payment pressure compared to two weeks ago. Second, there is no new business activity or investment in the country. 

The slowdown means imports of capital machinery have also declined. Private-sector credit growth was 6.29% at the end of September, the lowest on record. In other words, businesses are not importing capital machinery even though banks have adequate dollars. Third, remittance inflow has increased towards the end of the month as salaries are paid abroad, raising supply at banks compared to demand.

Syed Mahbubur Rahman, MD and CEO of MTB, said, "Large government payments have already been made. There are no major payments ahead, which has eased pressure on the dollar. This is the main reason behind the rate declining. Earlier, the rate increased mainly because of large payments – the more the payments, the greater the pressure on the dollar."

Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said, "Business investment is stagnant, so demand for dollars among businesses is low. As a result, there is no longer the same need for dollars to buy capital machinery. Bangladesh Bank's strategy is to keep the dollar rate higher because a higher rate boosts remittance and export earnings. I believe this strategy is appropriate."

A treasury chief at a private bank said remittance inflow has increased towards the end of the month. This positive trend is likely to continue into December. For the first 10 days of December, dollar demand will remain relatively low, but pressure is expected to rise again in mid-December, which may push the rate up.

A senior Bangladesh Bank official said private banks handle commercial payments, while state-owned banks handle government payments. Although payment demand is currently low, it will rise again soon.

According to central bank data, remittance inflow reached about $2.69 billion as of 29 November, showing a positive trend in recent months.

On Saturday, Bangladesh Bank Governor Ahsan H Mansur also said that banks had adequate dollar supply. He said, "I have said before that to control inflation, the dollar market must be stabilised. The market is stable now – if anything, it is more stable than necessary."

A treasury chief at a state-owned bank said he bought remittance at Tk122.15 on Sunday. He added that remittance rates may rise further after the auction.

However, at private banks, the remittance rate is currently Tk122.30 to Tk122.40.