BB buys $129.5m more from banks to keep dollar stable
Since 13 July, BB has purchased $1.88b through several auctions
Highlights
- BB bought the dollars at Tk121.75 in today's auction
- A week ago, it bought $353m from banks at the same rate
- Economists say buying dollars via auctions is the right tool to keep rates stable
- Auctions help BB rebuild forex reserves, which now stand over $26b
The Bangladesh Bank today (22 September) purchased $129.5 million more from commercial banks through another auction at Tk121.75 per dollar to maintain stability in the foreign exchange market.
This follows a similar purchase of $353 million on 15 September at the same rate. Since July, the central bank has acquired $1.88 billion through several auctions.
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Confirming the matter, a senior Bangladesh Bank official told TBS that the Tk121.75 rate signals the reference rate for the greenback to commercial banks.
Economists and bankers note that maintaining a stable dollar rate is crucial for the economy, as both sharp rises and falls can negatively impact trade and financial flows.
Currently, the auction system provides advantages for exporters and remittance recipients while allowing the central bank to bolster its foreign reserves.
Economists believe the decision to buy dollars through auctions is the right tool.
Fahmida Khatun, executive director at the Centre for Policy Dialogue (CPD), said, "Purchasing dollars via auctions is an effective tool to keep the exchange rate stable, benefiting remittance inflows and exports."
She said, "The central bank always tries to keep the dollar market stable. Sudden fluctuations in the dollar rate can create problems for the economy. At the same time, the rate should be maintained at a level that ensures importers do not face difficulties, keeping a balanced approach."
Fahmida emphasised that stability in the dollar rate is essential for imports, exports, and investment.
She said, "The dollar rate has been left to the market, and efforts are being made to make it market-based. By purchasing dollars through auctions, the central bank is also increasing reserves. This method is used in other countries like India. When a dollar shortage arises in the market, the central bank will release dollars. This way, the market is kept relatively stable."
"Gradual increases or decreases in the rate are fine, but sudden spikes or drops are harmful to the economy, as such changes make the market more volatile," Fahmida added.
Bankers said that imports of capital machinery have fallen significantly, leading to a sharp drop in dollar demand. Bangladesh Bank data shows that letters of credit (LCs) for capital machinery imports in the previous fiscal year declined by nearly 25.5%.
A private bank's treasury chief told TBS that with lower capital machinery imports, the demand for dollars has decreased compared to earlier periods.
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.
Foreign exchange reserves are also rising due to dollar purchases. Earlier this month, after a $1.50 billion import payment to the Asian Clearing Union (ACU), reserves fell below $26 billion, with gross reserves standing at $25.39 billion. However, by 17 September, reserves again surpassed $26 billion.
A senior Bangladesh Bank official said that increased remittance inflows and export earnings have boosted dollar flows in banks. After selling dollars to other banks, these banks are also selling excess dollars to the central bank, which adds to the reserves.
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.
