Remittance dollar rate falls by Tk1 in a week
Senior officials at Bangladesh Bank and several commercial banks confirmed the development. Bankers also said the rate for settling letters of credit (LCs) has declined, and could fall further next week.
The dollar rate has fallen by as much as Tk1 within a week, and several commercial banks bought dollars from remittance houses at Tk122.70 yesterday.
Last week, the rate was between Tk123.60 and Tk123.70.
Senior officials at Bangladesh Bank and several commercial banks confirmed the development. Bankers also said the rate for settling letters of credit (LCs) has declined, and could fall further next week.
The main reason is that commercial banks' Net Open Position (NOP) long positions are close to the upper limit, meaning banks currently have sufficient dollar holdings. As a result, they are not willing to buy remittance dollars at higher rates. At the same time, they are offering business groups lower rates for LC settlements because they want to sell off their existing dollar holdings quickly. Settlement rates have been reduced over the past three days.
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Meanwhile, expatriate Bangladeshis sent around $1.5 billion in remittances during the first 12 days of this month. Although government LC payment pressure was high last month, it has been comparatively lower in August. As a result, demand for dollars in the market has so far declined this month.
Bankers said the dollar could fall further next week if Bangladesh Bank does not purchase dollars from commercial banks through auctions. Commercial bank officials believe the rate could drop sharply to Tk122.20 if the central bank stays out of the market next week.
A senior Bangladesh Bank official said the central bank does not want the dollar rate to fall below Tk122.20, as that could discourage remittance inflows. Therefore, Bangladesh Bank may purchase dollars from commercial banks next week.
In July, however, the dollar rate had risen because of heavy government payment obligations. At the time, commercial banks were buying dollars from remittance houses at between Tk123.85 and Tk123.90.
Government payment pressure is lower in August than in July, making a similar rise in the dollar rate less likely this month.
Senior Bangladesh Bank officials said government payment pressure is relatively low in August, while banks also have adequate dollar liquidity. With NOP long positions close to their upper limit, commercial banks have little need to buy remittance dollars at higher rates.
A senior commercial bank official told The Business Standard that the dollar could decline further now that the downward trend has begun. Remittance inflows have increased dollar supply in August, while payment pressure has fallen. This has created a situation in which Bangladesh Bank may need to buy dollars from the market; otherwise, the dollar rate could fall further.
Remittances remained below $3 billion in both June and July, after exceeding $3 billion for six consecutive months from December through May. In March, remittance inflows came close to $4 billion.
Meanwhile, the country's foreign exchange reserves stand at $32.30 billion.
LC settlement rate also falls
The decline in the remittance dollar rate has also affected LC settlement rates. The rate for settling LCs has fallen by as much as Tk1. Several industrial groups settled LCs at Tk123.10 per dollar yesterday.
A senior official of a local industrial group said the dollar rate began declining from Tuesday this week. The LC settlement rate was lower in the afternoon than in the morning, and lower still in the evening.
He said one private bank settled LCs at Tk123.70 on Tuesday morning and Tk123.50 in the afternoon.
On Wednesday morning, the rate was Tk123.50 and fell to Tk123.25 in the afternoon. The rate continued to decline throughout the day. By Thursday, it stood at Tk123.10 in the morning and Tk123 in the afternoon.
A senior executive of another business group told The Business Standard that a private bank called yesterday to inform them that LC settlements could be made at between Tk122.90 and Tk122.95 at the bank next Monday.
LC settlements exceed $6 billion in July
According to Bangladesh Bank data, commercial banks settled $6.32 billion worth of LCs in July this year, while LCs worth $6.68 billion were opened.
In June, LC settlements amounted to $7 billion.
This means the market experienced significant dollar demand over the past two months.
