Bangladesh Bank mulls new measures to tackle forex volatility

The Bangladesh Bank is now trying to try out a new set of rules to manage volatility in the foreign exchange (forex) market.

As part of the latest decision, the central bank is expected to hold a meeting with top bankers on Sunday with this urgent task at the top of the agenda, officials said on Saturday.

The reorganization of the interbank foreign exchange market as well as the fixing of the spread between the rates of sale and purchase of the American currency should dominate the crucial discussions of the day.

The central bank has already invited the leaders of the Bangladesh Bankers Association (BBA) and the Bangladesh Stockbrokers Association (Bafeda) to attend the meeting, officials said.

The meeting will be held at the BB headquarters in the capital under the chairmanship of Deputy Governor Ahmed Jamal.

Banks quoted a maximum of Tk 95 for selling collectable bills, commonly referred to as BC, to their customers for the settlement of import payments on Thursday.

Some banks, however, swapped the greenback at rates between Tk 95 and 109 to settle import payment obligations, ignoring their advertised rates, according to market operators.

On the other hand, banks also quoted the maximum in dollars at Tk94 on the day to shippers as well as realized export revenue or TT clean which remained unchanged from the previous business day.

Some banks, however, collected export proceeds by offering a maximum of Tk 107 instead of Tk 94 on the same day to meet their growing demand for the greenback, they added.

Currently, all Authorized Concession Banks (AD) are allowed to maintain the maximum Tk1 spread between the sale and purchase of US currency as recommended by Bafeda.

In September 2006, the Bafeda had advised its member banks to maintain the spread at maximum Tk1 for BC sales and TT net purchases of US dollars.

Banks now set their exchange rates for small and retail transactions, including interbank transactions, in line with central bank advice.

However, large business transactions are priced based on the much higher provisioning costs of overseas remittances sent by international exchange houses.

Meanwhile, ABB Chairman Selim RF Hussain had earlier urged all stakeholders to help make the interbank foreign exchange market operational and vibrant to ease the current pressure.

Currently, the local currency is depreciating against the dollar mainly due to higher outflows of foreign currency following strong growth in import payments compared to inflows over the past few months.

Earlier on Aug. 3, the central bank eased its regulations on encashment of the value-added portion of repatriated export earnings in a bid to bring flexibility to trade transactions.

As part of the relaxations, all AD banks were allowed to retain the value-added share of foreign currency export earnings for a maximum period of 15 days.

The value added portion refers to export earnings that are available to exporters after their import bills for back-to-back letters of credit (LC) have been settled.

On May 29, the central bank had asked AD banks to collect the value-added portion of repatriated export earnings by the next business day.

Meanwhile, the central bank continues to provide its currency support to regular banks to manage volatility in the foreign exchange market.

As part of the measures, the central bank sold an additional $122 million directly to various banks on Thursday to help them meet growing demand for the greenback as rising global prices led to escalating investment costs. importation with its resulting pressures on the reserves of Bangladesh, as well as many other countries.

The BB has so far injected $1.72 billion from reserves directly into commercial banks as liquidity support for import payments in the current FY23.

In FY22, the central bank sold $7.62 billion of reserves to banks for the same purpose.

Bangladesh’s foreign exchange reserves hit $39.59 billion on Thursday, from $39. 54 billion the previous business day, following an increase in currency inflows than outflows.

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