Crawling-peg system gradually pulling up forex market

Interbank foreign-exchange turnover that declined nearly 9.0 per cent during the first nine months of the last fiscal, year on year, is on a recovery path following the introduction of the crawling-peg system.
The forex turnover during July-March period of FY 2023-24 was US dollar 16.7 billion.
The same was $18.3 billion in the corresponding period of FY2022-23. This is indicative of liquidity shortage in the forex market, economists say.
People familiar with the developments at a number of commercial banks told the FE that the interbank forex market almost sagged as the central bank's dollar-exchange rate was much lower than the market rate.
They mentioned that there were huge problems they faced in collecting foreign exchange to meet import liabilities.
Md. Shaheen Iqbal, a deputy managing director of private commercial bank -- BRAC Bank -- told the FE correspondent that this lower turnover on the foreign-exchange market was due to mismatch in the Bangladesh Bank-set one and the open-market prices.
Bangladesh Bank kept the price of the US dollar at Tk 110 at a time when its price on the open market was around Tk 120.
However, under the crawling-peg system, the dollar-taka exchange rate was adjusted to Tk 117 in May 2024.
"The interbank market remained almost nonfunctional during the period," Mr. Shaheen notes.
He said they used to ask the clients to collect their own foreign exchange needed to meet the import payment. Many times they used to use remittance inflows to meet the import payments.
The treasury head of another commercial bank told the FE that since the beginning of the crawling-peg system, the interbank transactions have soared.
"We expect that the foreign-exchange turnover will increase in the coming months," the treasury chief says.
The main component for this deceleration was swap transaction, which constituted 94.8 per cent of the total transactions. It also decreased 9.6 per cent during July-March FY24 compared to the swap transactions in July-March FY23.
However, spot transactions increased by 9.7 per cent in this period, accounting for only 4.9 percent of the total turnover.
Bangladesh's interbank foreign-exchange-market transactions consist of spot, forward, and swap transactions.
Under the swap mechanism, banks that need dollar used to swap with local currency and vice-versa.
Total turnover on the foreign-exchange market stood at $23.6 billion in FY23.

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