BD gross forex reserves cross $26b with greenback buys

Bangladesh's foreign-currency reserves show a robust rebound with the central bank having booked around US$1.0 billion from commercial banks in just seven days of deals under the currency-swap window, officials said.

With the rising sales of the American greenback by the cash-strapped scheduled banks, the gross volume of forex reserves in Bangladesh Bank's calculation rose to $26.17 billion as on March 05, from $25.16 billion recorded on February 19, a day before the taka-dollar swapping came into effect.

In accordance with IMF's BPM6 arithmetic, the gross reserves rose to $20.98 billion until Tuesday last from the February-19 count of $19.97 billion.

According to BB statistics, the currency swap officially started on February 20 with deals amounting to $155 million. In the first seven days' deals ($235 million on February 22, $198 million on February 27, $90 million on February 28, $50 million on February 29, $101 million on March 04 and $112 million on March 05) under the special arrangement, the liquidity-hungry banks had sold a total of $941 million to the banking regulator.

Seeking anonymity, a BB official said the central bank launched the currency-swap mechanism allowing the banks to get local currency at cheaper rate in exchange for their surplus US dollars.

And the policy started working well as banks having shortfall of local currency for the purchase of the greenback come to them and sell the American currency to meet their local-currency obligations.

As the inflow of remittance and export receipts keeps rising, the central banker says, the supply of forex or net open position (NOP) balance of banks is also increasing. "So, they need to make proper use of the assets and currency swap is the perfect option for them," says the BB official.

According to the BB statistics, some 15 cash-starved commercial banks got Tk 103.51 billion so far from the central bank through selling dollars under the tradeoff.

According to the currency-swap trading, banks have to sell their forex to the central bank at the spot rate. The spot rate is now Tk 110 a dollar.

In terms of getting the same currencies back again on a future date, the deal shall be settled applying the same exchange rate with swap point based on the interest-rate differential considering prevailing benchmark rate of foreign currency (3-month term of SOFR rate) and the BB policy rate.

For example, currently the 90-day SOFR rate is 5.30 per cent and the policy or repo rate is 8.0 per cent. So, the differential is 2.7 per cent, which will be charged to banks to get the currency back.

For Shariah-based commercial banks, the taka will be sold in exchange for approved foreign currencies at the spot rate. But the unconventional banks do not need to count the deferential of the rates while swapping back the dollars.

Liquidity tightness in the country's commercial banks persists in recent months because of contractionary monetary stance of the BB alongside the buying of the greenback from the global exchange houses.

And the government's increased domestic bank borrowing to meet the budget-financing shortfalls worsens the situation further, the sources say.

Managing director and chief executive officer of Dhaka Bank Emranul Huq says commercial banks having over-bought forex stock have been benefiting largely from the move on the money market as they can avail local currency at much lower rate of 2.7 per cent, against the repo rate of 8.0 per cent, through depositing their additional foreign currencies with the central bank.

On the other hand, the BB can boost the forex reserves with the dollars deposited by the banks. "So, it's a win-win situation to both parties," he adds.

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