Banks can roll in higher forex

The central bank has raised substantially the net open position (NOP) limit for commercial banks to hold higher amounts of foreign exchange.
Officials said the measure is meant for keeping the inter-bank foreign exchange (forex) market stable.
The NOP has been jacked up by more than 45 per cent to US$ 2.19 billion from $1.51billion earlier of all 56 scheduled banks.
The new limit has been determined on the basis of 20 per cent of the total regulatory capital of the banks as on March 31, 2016, according to the BB officials.
Earlier, the NOP was re-fixed on the basis of 15 per cent of the total regulatory capital of the banks on March 31 last year.
The Bangladesh Bank (BB) enhanced the NOP by more than 11 per cent to US$1.51 billion on July 20 last year from $1.36 billion earlier for the all banks.
Under the revised directives, the banks are now empowered to retain more foreign exchange that helps minimising sale pressure of the US dollar on the inter-bank foreign exchange (forex) market, the central bankers explained.
"We've already informed the banks about the revised NOP limit and asked them to maintain the new limit to holding foreign exchange," a senior BB official told the FE.
He also said the central bank has/ increased the limits of NOP for all the banks in line with the market demand.
The central bank has taken the latest move against the backdrop of increased flow of foreign exchange into the market as well as capital base of the banks because of lower import-payment obligations in the recent months.
Besides, the higher growth of export earnings has boosted the supply of the greenback to the local forex market recently, the central banker added.
Rising trends in retained earnings have contributed to improvement of the capital base of the banks, according to the BB official.
The bankers, however, expressed mixed reactions on the latest BB move, saying that it would help them to settle foreign-exchange transaction in a better way but have to face new challenges relating to volatility risk.
"The revised directives will help reduce selling pressure of foreign exchange. But it will increase forex-volatility risk of the banks," a senior treasury official of a leading private commercial bank told the FE.
The cost of funds of the banks will increase due to the holding of low-yielding asset, the private banker explained.
On the other hand, the central bankers said Bangladesh purchases the US dollar from the banks continuously to tame the inter-bank foreign exchange (forex) market.
 "We're buying the US currency continuously from the banks directly to protect the interests of exporters and migrant workers by keeping the exchange rate of the Bangladesh Taka (BDT) against the US dollar stable," another BB official said.
He also said such purchase may continue during the current fiscal year in line with the market requirements.
A total of $389 million was bought from the commercial banks between July 11 and July 27 of the current fiscal year for offsetting its increased supply to the market, the BB data showed.
The country's forex reserves reached $ 29.90 billion on Tuesday from $ 29.88 billion on the previous day following the purchase of US dollar.
"We've helped the banks through purchasing the US dollar from them to comply with the net open position (NOP) rules for holding foreign exchange properly," the central banker noted.
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