Bangladesh Bank gets tightfisted in dollar sale to the commercial banks as pressure builds up on the country's minimal foreign-exchange reserves, particularly for import financing amid Ramadan binge.
Officials concerned at Bangladesh Bank, however, said the cautious stance was taken not only considering the falling reserve trend but also because the supply of the greenback continued growing on the forex market thanks to growth in export and remittance earnings.
Sources said a significant growth in the opening of LCs against import of eight most-consumed Ramadan essentials, wherein most of BB-released dollars are spent in recent months, largely prompted the tightening.
According to official statistics, the BB sold US$ 1410.70 million (over 1.4 billion) to the banks in October 2022 followed by US$ 1395 million, US$ 1442.86 million, and US$ 1221.80 million in November, December and January (2023) respectively.
The central bank has scaled down the sale of the US currency since February when only US$ 924.26 million was sold. The handout figure further declined to US$ 640 million up to March 22, 2023.
Seeking anonymity, a BB official said for ensuring enough supply of eight key essentials--edible oils, chickpea, pulses, pea, onions, spices, sugar and dates--during Ramadan, the BB started selling dollars in large volumes to support the banks in meeting their foreign-currency obligations in import of these items.
As a significant number of LCs opened with the banks riding on BB's record volume of dollar injections, the central bank tightened the sale to protect the reserves, the official said.
"I think this is a right move. This will also help prevent the scope of banks to gain more through selling the dollar at higher rates after purchasing those from the BB at a lower rate," the official added.
Talking to the FE, Bangladesh Bank spokesperson Md. Mezbaul Hoque said the situation with the US dollar keeps improving in recent times as the balance of the greenback in the banks rose to US$ 3.65 billion as on March 22 from US$ 2.50 billion recorded on January 01, 2023.
On the other hand, he said, earnings from export and remittance continued rising. "So, things are improving."
Contacted over the dollar conundrum-largely a spillover from the prolonged global financial upheavals--managing director and chief executive officer of Brac Bank Limited Selim R. F. Hussain said the BB injected funds from its forex reserves to facilitate import of some key essential items amid tightness of the dollar.
"But the supply of the greenback continues increasing as the volumes of both inner remittance and export are being enhanced," he also noted.
Managing director and chief executive officer of Social Islami Bank Limited (SIBL) Zafar Alam holds much the same view on earnings from export and remittance in recent months.
"We are expecting more inflow of dollars from remittance as two Eid festivals are coming up when expatriate Bangladeshi workers normally send more remittance," he says about the festival spur to incomings against the Ramadan binge-driven outgoings.
On anonymity, a top bank executive says the central bank needs to maintain a minimum healthy reserve, as prescribed by the IMF (International Monetary Fund), by the end of June.
But growing sale of the dollar from the central bank has put more pressure on the country's foreign-exchange reserves. "This is probably the reason behind the precautionary stance of the BB. If we look at annual sales of the dollar and the size of reserves, we will get some idea," the banker adds.
According to BB statistics, the central bank sold to banks US$ 235 million in the financial year (FY) 2020-2021 followed by a rise to US$ 7.62 billion in FY'22.
And the upward trend in selling dollar has intensified further in the ongoing fiscal year of 2022-2023 with US$ 10.56 billion sold out as on March 05, 2023.
On the other hand, the reserves were recorded at US$ 46.39 billion in FY'21 and it declined to US$ 41.83 billion in FY'22. The reserves as on March 22 of this fiscal stood down at 31.30 billion--and it is believed that the record dollar sale contributes largely to the significant fall.
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