Stock of local-currency taka with banks is also depleting fast for having to buy costly dollar amid unrelenting appreciation of the US currency amid its dearth.
Such a quandary for the bankers is arising from factors like forex-reserve depletion for lower inflows and also illicit outflows, among others, economists believe.
The gradual depreciation of the local currency against the US dollar comes as a double blow to the dollar-starved commercial banks whose expenses in purchasing the costly greenback from the country's foreign-currency reserves rise significantly, officials and bankers said.
As a result, the volume of excess liquidity in the banking sector continues shrinking fast and the process of removing or absorbing excess money from the economy comes amid looming liquidity crunch in banks because of the central bank's recent belt-tightening steps to contain inflation through squeezing money supply.
According to statistics available with Bangladesh Bank (BB), the commercial banks, to settle their overseas transactions amid the forex crunch, spent over Tk 1.34 trillion in the past fiscal to purchase a record amount of US$13.57 billion from the reserves maintained by the central bank.
But the uptrend in spending to buy the dollar continues in this ongoing fiscal year (FY'24) as banks' monthly dollar-purchase investment was recorded at Tk 125 billion, equivalent to $1.147 billion, in July, Tk 126 billion ($1.154 billion) in August, Tk 106 billion ($0.966 billion) in September and Tk 132 billion ($1.198 billion) in October, as per the data.
Seeking anonymity, a BB official said the local currency depreciated by nearly 15 per cent against the mighty dollar over the last one year, forcing the banks to pay more in buying the American currency.
Dollar sale from the forex reserves with the central bank continues rising because of growing demand from the commercial banks.
The BB had sold the American currency amounting to less than a billion a month to the banks since February last but it soared to over a billion-mark from the start of this financial year.
"And, the growing sale of the dollar puts huge pressure on the reserves, which were falling fast to reach $25.29 billion as on November 09, 2023," he said, citing official count.
According to the BB data, the gross foreign-currency reserves amounted to $29.73 billion at the end of July. It declined to $27.26 billion in August, $26.93 billion in September and stood further down at $26.47 at the end of October.
Unofficial count under the IMF-determined methodology puts the current forex reserves below $20 billion, after latest import payments.
Contacted, Managing Director and CEO of Mutual Trust Bank Limited (MTB) Syed Mahbubur Rahman said the central bank stopped applying 'devolvement' instrument through which it used to meet major share of government's domestic bank-borrowing appetites in recent months. Now, the commercial banks are meeting government's bank-borrowing requirement, which keeps putting pressure on the excess liquidity situation of the banks.
"And growing expenses of the banks to buy dollar from the BB-managed forex reserves create additional pressure on the falling excess liquidity in the sector," Mr Rahman added.
Managing Director and CEO of Dhaka Bank Emranul Huq says the central bank continues mopping up local currency from the market through selling dollar that is squeezing the stock of excess liquidity.
"Although the volume of import orders declined significantly because forex tightness," Mr. Huq adds, "there is still demand for foreign currency to meet overseas-payment obligations."
According to the BB data, the excess liquidity in the banking system also dropped to Tk 1.74 trillion in August 2023 from Tk 2.0 trillion recorded in June 2022. And BB officials said it could have declined further in September.
Contacted for his view, professor at the department of Economics of East-West University AK Enamul Haque pointed out that the volume of imports slimmed significantly while the amount of interest payments didn't increase much.
"Then, why the reserve is falling down too fast! That I don't understand at all," he wonders, with implicit reference to observations on capital flight that involves dollar.
The Economics professor feared that the whole economy could collapse if the costly dollars were only being used to stabilise the exchange rate.
He mentioned that central bankers are saying that the BB has been selling dollars to meet foreign-currency obligations of the banks for import of foodstuffs, chemicals and petroleum products.
The eminent economist suggests that the central bank give them incentives in local currency instead of dollar.
"Are we indirectly helping capital flight? This needs to be addressed seriously. Otherwise, the economy will be in serious trouble that we don't want."
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