Banks asked to keep foreign exchange rates rational

The Bangladesh Bank has called on bankers to keep their foreign exchange rates rational as different rates are causing problems for some banks.

The central bank Governor Fazle Kabir made the call during a meeting with the Association of Bankers Bangladesh (ABB) on Wednesday.

People familiar with the discussion said different banks collect remittances at different prices with the average rate for most banks being Tk86-Tk88 per dollar. But many banks have to buy dollars from the domestic market at a higher price causing them to suffer losses.

The central bank governor called on ABB and Bangladesh Foreign Exchange Dealers Association (BAFEDA) to take policy decisions to resolve these problems. He also assured all kinds of support from the Bangladesh Bank in this regard.

According to central bank data, the central bank has sold about $2.5 billion in the last five months, to meet up the high volume of import payments. Despite this, the price of dollars has continued to gain against the local currency, raising the import cost and putting an extra burden on local importers.

On 9 January, the interbank exchange rate hit Tk86 per dollar for the first time, while a dollar was being exchanged for over Tk90 in the open market, a market for dealing after official hours.

Meanwhile, seeking anonymity a managing director of a bank said in order to increase the remittance flow through proper channels, the government has increased cash incentives for expatriates to 2.5% from January, up from 2%.

Besides, bankers have called on the central bank to control the kerb market.

"If the dollar exchange rate is higher in the open market, more money will come through [illegal] 'hundi' trading and fewer through legal channels," said the managing director.

The government has set a target of reaching $26 billion in remittance by the end of the fiscal year (2021-2022).

The government has set a target to reach $26 billion in remittance in the current fiscal year. So far $10.23 billion has entered the country.

The amount of remittance in December was recorded at $1.63 billion, an increase of $7 million from November but a fall from the same period of last year when $2.05 billion of remittance entered the country.

The meeting also discussed strengthening the loan disbursing process from the Export Development Fund (EDF) of the central bank to tackle the economic fallout from the impacts of the Covid-19 pandemic. Banks will be able to disburse loans from the fund till June of this year.