BB dollar sale to banks hits historic high

Bangladesh Bank sold a record amount of dollars to banks in the past fiscal trying to stabilise the forex market as bankers struggled to settle their foreign-payments obligations.
Sources said in the just-concluded fiscal year (FY 2022-23), the central bank fed a total of US$ 13.58 billion to the dollar-starved banks needing the greenback to meet their demands for settling international payments.
The country's foreign-exchange market became unstable-apace with the global financial volatility-- after beginning the war in Ukraine sometime in February 2022.
This (dollar sale) is more than 78 per cent higher than that of the previous FY 2022 when the BB handed out only $7.62 billion.

However, during the FY 2023, BB bought only $193 million from banks to boost the foreign-exchange reserves that also got under stress.
Such historic high in BB dollar sales impacted the foreign-exchanges reserve significantly. The reserves at the end of June last were recorded at $30.8 billion by official account-- down by nearly 26 per cent from the mark in June 2022.
To avoid the overshooting of exchange rates because of the shortfall of dollars on the money market, the Bangladesh Bank kept injecting the greenback into the banks, official sources have said.
Such growing sale of the dollar from the central bank put more pressure on the country's foreign-currency reserves already under stress because of increasing import costs.
According to BB statistics, the central bank purchased US$ 7.93 billion from the market and sold US$ 235 million in the financial year (FY) 2020-2021. The arithmetic was altogether different in the previous fiscal (FY'22) as it bought US$210 million while selling US$ 7.62 billion to the banks.
The state-run banks, in particular, are taking an increased volume of dollar support from the central bank for settling import payments for Bangladesh Petroleum Corporation, Bangladesh Agricultural Development Corporation and Bangladesh Chemical Industries Corporation and so.
"The central bank has sold a large volume of the US currency to stabilise the exchange rate amidst the shortage of the dollars on the market and the exchange rate was also much lower then," says an official at the central bank
Contrarily, the BB official adds, the central bank had purchased a colossal volume of the greenback from the market in FY'21 when a record inflow of remittances amounting to US$ 24.77 billion was recorded.
There was lockdown, which restricted people's movement and 'hundi business was not in operation because of the Covid-induced shocks.
"That's why a record volume of remittances had come. As the supply was huge, the BB purchased more foreign currency to make a balance on the market," the BB official said.
"Now the situation is completely reversed."
He, however, notes that once there had been no import tightening since the early FY 23, and there was a need for more dollars to be sold to the market.
When contacted, managing director and chief executive officer of Mutual Trust Bank (MTB) Limited Syed Mahbubur Rahman said the banks faced difficulties in settling LCs because of the forex dearth. "As a result, he said, banks are trying to use the window of buying US dollars from the BB to meet foreign-currency obligations."
Considering the current macroeconomic situation, BB has sold more dollars.
Research director of Bangladesh Institute of Development Studies (BIDS) Dr Monzur Hossain says the BB as part of its market intervention releases the dollar to the market as the supply-demand gap gets gaping in recent times.
"The BB needs to sell the dollar to stabilise the exchange rate but it should not release the same at a level that might create more pressure on the reserves," he suggests.
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