Cenbank to set dollar reference rate, fix spread
Violators to face penalties; banks must pay the same rate on remittances and exports
After seven months of introducing a crawling peg system, the Bangladesh Bank is set to increase the mid-rate by 1.5-2% from Tk117 per US dollar, in response to recent market trends.
Additionally, the central bank is set to announce a reference rate for the dollar and has ordered banks to apply the same exchange rate for both remittance and export proceeds.
Banks found violating these guidelines will face penalties, including a minimum fine of Tk10 lakh or 5% of the transaction value in the case of Letter of Credit (LC) violations.
At a meeting yesterday with the managing directors and treasury heads of around 40 banks, Bangladesh Bank Governor Ahsan H Mansur laid out these instructions, which will be formally issued in a circular in the coming days. Senior bankers confirmed the details to The Business Standard.
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The meeting was also attended by four deputy governors and executive directors from relevant departments of the central bank.
"In the interim, these measures aim to ensure transparency and stability in the foreign exchange market,"
A managing director of a private bank said, from now on, banks will not be allowed to offer different rates for dollars sourced from remittances and export proceeds. "A uniform rate must be applied to both types of dollar inflows," he explained.
In addition, the governor set a maximum allowable spread of Tk1 for buying and selling dollars. "Banks will be permitted to trade dollars within a specified range around the upcoming reference rate," another managing director added.
Further instructions include a requirement for banks to publish their exchange rates and ensure transactions are carried out according to these publicly displayed rates.
Banks must also report these transactions to the Bangladesh Bank which will then publish overall market rates twice a day for transparency.
The central bank will closely monitor compliance with these guidelines and establish a complaint cell led by senior officials. Any credible complaints or whistleblowing from the industry or affected clients will be thoroughly investigated.
Another managing director attending the meeting highlighted that the governor warned banks that those charging above the specified limits or making excessive profits from dollar transactions would face penalties after individual case inspections.
Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bangladesh, welcomed the initiatives, saying that the central bank's long-term goal is to transition to a market-based exchange rate system.
"In the interim, these measures aim to ensure transparency and stability in the foreign exchange market," he told TBS.
"A slightly better rate will help us cope with the challenges we are facing,"
He also noted that the central bank is exploring alternative initiatives to strengthen the exchange rate stability through greater involvement of banks with access to foreign exchange liquidity, which will help develop a deeper interbank market.
Sheikh Mohammad Maroof, managing director of Dhaka Bank, told TBS that, according to the new directives from the governor, banks will now have to adjust the rates for buying dollars from exporters and remitters.
"As a result, banks that used to offer unusual rates for dollars for remittances will be cautious," he said.
The governor also suggested the creation of a "Market Stabilization Fund" in foreign currency, which could be used to stabilise the dollar market during periods of volatility. However, no final decision on this fund has been made yet, bankers said.
The meeting also addressed the role of intermediaries and aggregators abroad, who have contributed to driving up exchange rates in recent weeks, often to the detriment of Bangladeshi citizens.
The governor urged banks to ensure that any benefits from exchange rate movements are passed on to importers to curb inflation, rather than to aggregators who do not fully transfer the benefit to remitters.
"If all banks follow the central bank's guidelines, it will be possible to stop market manipulation by aggregator remittance houses," said Maroof of Dhaka Bank.
A senior official from the central bank said the meeting began with a presentation outlining import, export, and remittance data.
The governor pointed out that import volumes have not increased significantly, while export and remittance inflows have shown strong growth. Despite this, he questioned why the dollar rate had spiked.
In response, banks cited several factors, including year-end maturity dates for import payments, clearing $2.5 billion in overdue payments, and challenges posed by remittance aggregators.
They also mentioned the central bank's directive to clear all overdue payments by December. After hearing these explanations, the governor introduced new measures to regulate the dollar market.
On 19 December, Mansur told TBS that there was no shortage of supply or excessive demand in the market. He criticised banks for buying dollars from exporters at Tk118-119 and from remitters at Tk127, calling such practices unethical.
MA Jabbar, managing director of DBL Group, one of Bangladesh's largest apparel exporters, welcomed the uniform exchange rate for export and remittance transactions. "A slightly better rate will help us cope with the challenges we are facing," he said.
Jabbar also said that the readymade garment sector is struggling due to a lack of access to the Export Development Fund, wage hikes, liquidity support from banks, and price cuts from buyers.
