Returns on forex reserve investments at 6-yr high

The country's return on foreign exchange reserve investments reached a six-year high in fiscal year 2025 supported by mainly rising global yields, according to a report released by the central bank.

The Bangladesh Bank says income from reserve investments stood at US$639.53 million during the fiscal year while the country's gross foreign -exchange reserves amounted to $31.8 billion as of June 30, 2025.

The Forex Market and Reserve Management Report for FY 2025, released last week, has projected that reserves would continue to rise in the coming months on the back of a favourable balance-of-payments outlook supported by strong remittance inflows, improved exchange-rate alignment and contained import demand.

According to the central bank, the country's foreign-exchange reserves could reach $36.84 billion by the end of next June.

The report also says a gradual recovery in exports, inflows of multilateral financing and the rollover of trade credits would further strengthen the country's external liquidity position.

The BB notes that prudent management of foreign -exchange reserves remains crucial due to frequent volatility on the international financial market.

"Despite global uncertainty, strategic portfolio management and timely intervention helped stabilise the local currency, taka, and enabled the country to meet all external obligations smoothly," the regulator claims.

The report mentions the reserves as a vital buffer against external shocks, although  management systems in Bangladesh during the period.

The central bank is now focusing on strengthening reserve management further with "improved technology, enhanced risk-management frameworks and adaptive long-term strategies".

According to the report, the central bank mainly invests reserve assets in highly rated fixed-income instruments in the global arena.

The reserve portfolio is dominated by the US dollar, accounting for 82 per cent, followed by the Euro.

The report says safety remains foremost priority in reserve-investment decisions.

The reserves are invested in secure and high-quality assets, including US Treasury securities, sovereign bonds and deposits with top-rated international banks.

The report also says that around 12 per cent of reserves are maintained in cash or near-cash instruments to ensure immediate liquidity support when required.

Investment in fixed-income securities continues to remain a key component of reserve management due to their stability and liquidity advantages.

"These (fixed-income instruments) are selected because they are very safe, liquid and carry strong credit ratings," the report explains the modus operandi of the sovereign investment.

The central bank also invests part of the reserves in gold to protect asset value during periods of inflation, currency depreciation and global uncertainty.

It suggests that gold holdings should account for around 5.0 per cent of total foreign -exchange reserves.

In addition, Bangladesh maintains a part with Special Drawing Rights (SDRs), the International Monetary Fund's reserve asset, arguing that it is part of its reserve-diversification strategy.

"For Bangladesh, SDR serves as a strategic tool to diversify its foreign-exchange reserves," the report mentions.

The central bank in its report emphasises that foreign -exchange reserves play a pivotal role in maintaining macroeconomic stability and strengthening resilience in the external sector.

The reserves provide the financial capacity to meet essential external obligations, including import payments, external debt servicing and other current-account requirements.

The central bank says its key objective is to secure reasonable returns on reserve investments without taking excessive risks.

It also manages market risks through diversification of reserve assets in line with international reserve-management guidelines.

The central bank also manages several special funds, including the Export Development Fund (EDF), Green Transformation Fund (GTF) and Long-Term Financing Facility (LTFF) -- which play role in economic development in the country.

In South Asia, Bangladesh's reserves have grown steadily over the years, peaking at around $46 billion in 2021.

India continues to maintain the region's largest reserves, while Nepal and Bhutan recorded stable growth.

In contrast, Pakistan and Sri Lanka experienced significant volatility, often relying on external financing and IMF support.

jasimharoon@yahoo.com