Central bank likely to change policy stance on forex reserve

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Shakhawat Hossain
The Bangladesh Bank is likely to revise its policy stance on foreign exchange reserve requirement in view of the galloping import costs of fuel oils and food items, according to sources.
In line with the suggestion from the International Monetary Fund (IMF), the central bank fixed the minimum reserve requirement at $5.0 billion about four months back.
Although the BB is yet to fix the new reserve requirement, it is finding it hard to maintain the reserve requirement following substantial price-hike of fuel oils and food items in the international market, sources said.
Since early part of this fiscal, the central bank fixed the new reserve requirement raising the previous level of $3.0 billion to $5.0 billion.
At the moment, there is no policy deal between the BB and the IMF after the expiry of the Poverty Reduction Growth Facility (PRGF) in June last. The government has decided not to pursue the IMF for a new policy deal until the next national election planned to be held by 2008.
Sources said ensuring the new reserve criteria has become difficult for the BB following its decisions to provide loans in foreign currency to the nationalised commercial banks (NCBs) to foot a part of the petroleum import bills.
As per its decision to lend more than $300 million credit to the NCBs, the BB has already made available more than $100 million to the Agrani Bank.
Besides, the central bank recently intervened in the currency market to help import of commodities.
It released between $10 million and $20 million each week during the last one and a half months to facilitate smooth import of essential commodities.
The BB reserve was $5.45 billion as of Thursday last, said BB officials.
With the settlement of an Asian Clearing Union (ACU) payments, involving more than $460 million, scheduled for Monday next, the officials are certain that the reserve would come down below $5.0 billion mark.
The officials point out that scope for keeping the reserve at $5.0 billion appears to be slim.
They, however, hoped that the situation may change if the prices of petroleum products decreased and the country's export growth remained strong.
However, the price of a barrel crude oil has already hit $98 in the international market and there is no sign of any letup in the price rise. The growth of readymade garment export that contributes more than 70 per cent in the country's forex income has not been satisfactory in recent months.