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Bangladesh Bank continues injecting dollars into market

  • Published at 10:33 pm February 18th, 2019
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During the July-December period of this fiscal year, export earnings rose by 14.01% to $20.16 billion from $17.69 billion, while import payments rose by 5.73% to $27.82 billion from $26.31 billion for the same period in the previous fiscal year (FY2017-18), according to the latest Bangladesh Bank data

Bangladesh Bank has continued injecting dollars to banks to stabilize the foreign exchange market.

The central bank sold $1.57 billion to banks as of Monday.

The amount in the last fiscal year was to the tune of $2.31 billion, meaning banks bought $ 190 million per month on average from the central bank.

There is pressure on the foreign currency market due to more demand for imports than exports and remittance earnings. This year import growth is a bit lower, but import growth was under pressure in the previous fiscal year, said central bank officials.  

Executive Director of Policy Research Institute of Bangladesh (PRI), Ahsan H Mansur, told the Dhaka Tribune that before the general election, the central bank sold US dollars because the government needed to stabilize the foreign exchange market.

"But how long can the central bank keep this up?" he remarked. "Since export earnings are not growing compared to imports, the taka must be devalued against the US dollar."

During the July-December period of this fiscal year, export earnings rose by 14.01% to $20.16 billion from $17.69 billion, while import payments rose by 5.73% to $27.82 billion from $26.31 billion for the same period in the previous fiscal year (FY2017-18), according to the latest Bangladesh Bank data.

As of February 17, the inter-bank exchange rate for the US dollar stood at Tk84.12, up from Tk79.29 two years earlier, increasing by a little more than Tk5.

Due to more selling, foreign exchange reserves stood at $31 billion as of February 12, down from $32.27 billion a year earlier.

Bankers said the reasons behind the high sales of the US dollar are the implementation of several mega projects in the country, as well as an increase in the import of raw materials and other commodities.

Managing Director of Bank Asia, Md Arfan Ali, said that rising exchange rates will put pressure on inflation as the price of imported goods will increase.

"Devaluing the local currency puts pressure on the liquidity market as the settlement of letters of credit [L/Cs] require more money," he added.  

Arfan also explained there will be more pressure on the US dollar in the coming days for the mega projects to be implemented.

According to central bank officials, the central bank has asked banks to sell US dollars at the same rate as that of the inter-bank currency market rate.

Despite this, some banks reportedly sell dollars at a higher rate than the inter-bank currency rate.