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Buying US dollar from banks

BB resumes action after three years

SIDDIQUE ISLAM | October 06, 2020 00:00:00

The central bank purchased US$ 2.63 billion from the commercial banks directly in the first quarter (Q1) of the current fiscal year (FY), aiming to keep the inter-bank foreign exchange (forex) market stable.

Official figures show the amount of purchasing the greenback was nearly three times higher than that of FY 2019-20 when the Bangladesh Bank (BB) bought $ 877 million.

The central bank resumed purchasing the US currency on March 09 last after around three years to keep the exchange rate of the local currency against the greenback stable.

The BB's intervention came against the backdrop of appreciating mode of Bangladesh Taka (BDT) against the US currency mainly due to lower import payments recently.

On the other hand, the central bank sold only $ 200 million to the banks during the July-September period of FY '21 to meet their demand for the greenback, the BB data showed.

"We've bought the US currency from the banks to protect interest of the exporters and migrant workers," Kazi Sayedur Rahman, executive director of the BB, told the FE.

The US dollar was quoted at Tk 84.80 on the inter-bank forex market on Monday. The rate remained at the same level in the Q1 of FY '21, according to the market operators.

Another BB official said the central bank has intensified buying the US dollar from the banks to offset higher inflow of the foreign currency in the recent months.

"The supply side of the foreign currency is improving gradually, following higher growth of inward remittances despite the ongoing Covid-19 pandemic," the central banker added.

The inflow of remittances grew by more than 48 per cent to $ 6.71 billion during the period under review from $4.52 billion in the same period of the previous FY.

He also said the steady growth of export earnings have also helped increase the supply of foreign exchange in the recent months.

"Such purchase also helps the banks to comply with the net open position (NOP) rules for holding the foreign exchange properly," the central banker said, replying to a query.

He also said that the BB may continue buying the US dollar from the banks considering the market situation.

"Most of the banks are now compelled to sell their excess foreign exchange to comply with the NOP limit properly," Md. Ali Hossain Prodhania, managing director of Bangladesh Krishi Bank (BKB), told the FE.

The NOP means the outstanding open position of foreign currency overbought/oversold of a bank.

The central bank has fixed the NOP of 56 scheduled banks at $2.23 billion on the basis of 20 per cent of the total regulatory capital of the banks on quarterly basis, according to another BB official.

"The inflow of the US currency is improving gradually due to higher inflow of remittances but lower import-payment obligations amid the ongoing pandemic and differing some payments," Mr. Prodhania, also former chairman of the Technical Committee of Bangladesh Foreign Exchange Dealers' Association (BAFEDA), noted.

As part of the ongoing intervention into the market, the central bank bought $ 95 million directly from four commercial banks on Monday.

The country's forex reserves reached $ 39.60 billion on the day from $ 39.49 billion on the previous day, following the purchase of the US dollar.

On the other hand, the inter-bank call money rate has recently dropped significantly as the central bank injected fresh funds continuously through buying the US dollar from the banks directly.

The central bank injected Tk 222.77 billion in the market through buying $2.63 billion from the banks in the first three months of FY'21.

The weighted average rate (WAR) of call money came down to 2.47 per cent on Sunday from 2.63 per cent on the previous working day. It was 4.27 per cent on September 01.

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