Forex reserves show a rebound as the dollar-taka-swap mechanism proves a boon for both the Bangladesh Bank and cash-strapped commercial banks amid liquidity stress in the country's banking sector.
This has clearly been manifest in the first two days' deals under the currency-swap arrangement between the country's central bank and the commercial banks.
According to BB sources, the central bank purchased US$390 million from the commercial banks under the swap in first two days of the special exchange arrangement meant for circumventing the crunch.
On the first day, February 20, the BB bought $155 million from the banks. The following official day on February 22, commercial lenders sold more than $235 million to the banking regulator.
The two days' outcome from the swapping is much higher than BB's entire February dollar sales so far, as the central bank, apart from currency swap, purchased $245 million until February 20, 2024.
And inclusion of the latest deals under the swapping arrangement helps increase the stock of the country's foreign currencies, giving some respite to the economy that comes under pressure because of quick depletion of the foreign-exchange reserves.
According to BB data, the gross forex reserves under the central bank's calculation method stood at US$25.52 billion while it is US$20.37 billion in IMF's arithmetic as on February 22, 2024.
Even on February 14, the gross reserves under BB and IMF calculations were $25.06 billion and $19.94 billion respectively.
Spokesperson for the central bank Md Mezbaul Haque said the currency swap helps manage liquidity management of the commercial banks positively and allows them to buy more remittance with the local currency they got through selling the greenback.
"I think this policy started working well."
Mr Haque, an executive director of the Bangladesh Bank, also informed that such exchange also helps cut dollar prices on the kerb market to around Tk 124 a dollar from Tk 128 per dollar recorded couple of days ago.
"I hope the exchange rate in the informal market will come down further in the coming days if the dollar-taka swapping trends continue," he added.
Seeking anonymity, another BB official said the currency swap was giving an indication that the reserves will continue to grow, which will be a good sign for the economy.
The central banker feels that the currency swap proves to be a good option for the banks having dollars and not the local currency. "By using the window, the commercial lenders now get local currency at much lower rate."
The supply of foreign currencies (forex) or net open position (NOP) in the commercial banks keeps improving in recent weeks. So, they need to make proper use of the assets, the official said.
According to BB statistics, the NOP was $40 million negative on January 1st, 2024. The following day, the deficit in forex positioning had gone past $ 100 million.
Since then, the supply of the greenback in banks kept improving and moved towards positive territory, reaching $410-million positive on February 14, 2024, the data showed.
According to the currency trading, banks have to sell their forex to the central bank at the spot rate. The spot rate is now Tk 110 a dollar.
In terms of getting the same currencies back again on a future date, the deal shall be settled applying the same exchange rate with swap point based on the interest-rate differential considering prevailing benchmark rate of foreign currency (3-month term of SOFR rate) and the BB policy rate.
For example, currently the 90-day SOFR rate is 5.30 per cent and the policy or repo rate is 8.0 per cent. So the differential is 2.7 per cent, which will be charged to banks to get the currency back.
For Shariah-based commercial banks, the taka will be sold in exchange for approved foreign currencies at the spot rate while the deal, for swapping back dollars, shall be settled by applying the same exchange rate. The unconventional banks do not need to count the deferential of the rates.
Managing director and chief executive officer of Dhaka Bank Emranul Huq said commercial banks having over-bought forex stock would benefit largely from the move as they can avail local currency at much lower rate of 2.7 per cent, against the repo rate of 8.0 per cent, through depositing their additional foreign currencies with the central bank.
On the other hand, the BB can boost the forex reserves with the dollars deposited by the banks. "So, it's a win-win situation to both parties," he adds.
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