Central bank stops dollar sale, banks sourcing forex from interbank market

A major policy shift significantly squeezes foreign-currency feeding to the commercial banks by the central bank as a sure-fire measure to protect the country's fast-depleting foreign exchange (forex) reserves, bankers said.

And the change in the strategy of Bangladesh Bank (BB), the country's central bank, is not only helping reduce the net sale of foreign currencies largely from the reserves but also keep the dollar transactions on the interbank market vibrant, according to them.

Instead of selling the precious foreign currencies, the American greenback in particular, the banking regulator now intensifies its bid to buy more foreign currencies from the market to keep the forex market stable, they said.

The central bank in the last financial year (FY'24) sold $12.80 billion to the banks facilitating them to settle their overseas payments amid forex dearth and bought $3.38 billion from the market. As per the buy-sell scenario, the BB's monthly net dollar sale was around $800 million, according to the official data.

From the start of this fiscal year (FY'25), things started reversing as the central bank sold $678 million in July 2024 against the purchase of $105 million and the net dollar sales dropped to $573 million.

In the following month of August, the net sales plummeted to $160 million as the central bank sold $170 million while bought $10 million from the market.

The downtrend continues further with the net dollar sales having dropped to only $22.50 million in September.

Seeking anonymity, a BB official says the significant fall in the net sale of dollar becomes clear soon after the new BB governor, Dr Ahsan H Mansur, took charge of the central bank in mid-August following a regime change through the August-5th student-mass uprising.

To heal many persisting macroeconomic ills caused because of continuous bleeding from the rapidly depleting forex reserves of the country, the official says, "the governor decided not to sell the precious foreign currencies but to concentrate more on buying the greenback from the market."

Mentioning the buy-sell trend of the dollar in just- past September, the central banker says the BB sold only $111 million against the purchase of $88.50 million and the net sale dropped as low as to $22.50 million.

"This is remarkable. I think it's a good policy and it should have been taken much earlier to protect our reserves from being depleted rapidly."

Managing Director and CEO of Mutual Trust Bank Limited (MTB) Syed Mahbubur Rahman hails the central bank's move to stop dollar sale, saying that it is basically helping to activate the interbank market.

"I think we need to continue with the policy to bring stability in the forex market," he says.

Apart from the forex- market stability, managing director of Dhaka Bank Sheikh Mohammad Maroof says, a significant volume of local currencies went out of the market because of the buying of the forex from the central bank.

As the central bank significantly decreased the net sale of foreign currencies, the experienced banker notes, the forex-starved banks now starts sourcing their foreign currencies' obligations from the interbank market.

"So, the local currencies now remain within the banking system, which is very important in the current context of liquidity in the banking sector," he says about the change.

As the cost of funds continues rising because of contractionary monetary policy to contain inflation, the banker mentions, the pressure will not be too heavy for the banks because they will have the liquidity that earlier de-circulated from the market.

"By doing so, we can stabilise the markets of both forex and local currency," the top executive of Dhaka Bank says.

Dr M Masrur Reaz, an economist and chairman of the Policy Exchange of Bangladesh, also takes it as a positive change in the strategy of the BB to maintain price stability on the forex market and strengthen forex reserves.

"I think this should have been taken much earlier. Then we might not see such fall in the reserves. Now, the forex regime will be more market-driven," he says

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