BB refixes 'comfortable' forex reserve level at $5b

FE Team | Published: September 02, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Shakhawat Hossain
The comfortable forex reserve requirement of the central bank of Bangladesh has increased nearly to US$ 5.0 billion (500 crore) against the previous requirement of $3.0 billion, which is needed to meet the country's import bills of three months and the programme criteria of the International Monetary Fund (IMF), official sources said.
"The country's import bills per month have increased to $1,600 million (160 crore)," said Bangladesh Bank (BB) executive director Yasin Ali, adding that the central bank finds it comfortable to have a forex reserve of $4.8 billion, equivalent to the country's import costs of three months.
The BB has been maintaining a reserve of over $5.0 billion for more than a couple of months.
The official said the central bank's previous requirement of keeping a reserve of $3.0 billion is now invalid as the country's monthly import cost has gone up substantially following price hike of import items in the international markets.
To a query, he said the present policy of keeping the reserve at $5.0 billion plus or minus by the BB is also inconsistent with the IMF's programme criteria.
Referring to the monthly programme of the Washington-based multilateral lending agency, the official said the central bank is very close to following the IMF's reserve requirement.
However, the BB's present reserve of more than $5.0 billion will go down to $4.8 billion in the current month after settlement of an Asian Clearing Union (ACU) payment involving more than $300 million.
The ACU payment next week will not put much effect on the BB's reserve requirement as the ACU issue has already been discussed with the IMF, sources said.
Besides, the ACU payment may not keep the reserve below the $5.0 billion mark for more than 15 days and the reserve may rise close to $6.0 billion at the end of the calendar year, according to the sources.
The sources expressed the optimism on the basis of the central bank's existing contractionary policy which will be maintained until December next to discourage imports mainly for the non-productive sector.
In its six-month monetary policy announced in July last, the BB planned to tighten further its monetary policy to curb the loan-disbursing capacity of banks to keep the inflation rate within 7.0 per cent for the current fiscal.
The BB, that has been pursuing the policy for the last 19 months, hinted that the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) for banks might be raised to make the tight monetary policy meaningful.
Although such a policy was criticised by many, the central bank argued that the policy would help tighten the liquidity position of the banks and help the BB keep the inflation within its target.