BB buys $150m in auction to shore up forex market

Highlights

• BB held several auctions so far to buying dollars from banks 
• In first auction on 13 July, it bought $171m
• Last auction on 14 Aug, it acquired $176m 
• As of 28 Aug, forex reserves $26.19b as per IMF's BPM6 

To stabilise the exchange rate and support remittance and export flows, the Bangladesh Bank purchased $149.5 million from commercial banks through another auction yesterday.

The central bank initiated the auction yesterday, with an initial target of purchasing $30 million. However, it ended up buying a significantly larger amount, with a cut-off rate of Tk121.70. 

This follows a previous purchase on 14 August, when the bank acquired $176 million at a cut-off rate of Tk121.50. This indicates that the central bank increased the cut-off rate by at least 20 basis points.

A policymaker on the central bank's auction committee told TBS that 17 banks had offered to sell between $160-170 million, but the Bangladesh Bank purchased dollars from 13 of them to meet its target, which was set based on market conditions.

"An abnormal fall or rise in the dollar's rate is not a good sign," the official said, explaining that the central bank is taking necessary measures to keep the exchange rate stable. This strategy, he noted, is intended to support exporters and remitters while also building up foreign reserves. 

The official added that the cut-off rate was determined by the average interbank trading rate of Tk121.75 on Wednesday.

The central bank first began purchasing dollars through auctions on 13 July, acquiring $171 million at Tk121.50. It followed up on 15 July by buying an additional $313 million at the same rate. This new policy marks a significant shift, with the Bangladesh Bank now actively intervening to prevent a sharp decline in the dollar's value.

The head of a foreign exchange house said that the remittance market started yesterday at a rate of Tk121.50 but began to fall around 11am due to a lack of demand from banks. The central bank's announcement of the auction reversed the trend, and by the end of the day, banks were collecting remittance dollars at rates as high as Tk121.65.

According to a deputy managing director at a leading private bank, a year of strong inflows from remittances and exports has helped banks clear long-standing overdue import payments, particularly for fuel. With these payments settled and import pressure low, the supply of dollars now outweighs demand, causing the rate to fall, he said. 

"The central bank's intervention is seen as a way to maintain the rate, with an apparent target range of Tk121.50 to Tk122.50," said the banker.

The central bank data shows that as of 28 August, the country's foreign exchange reserves stood at $26.19 billion under the BPM6 calculation method.