Balancing forex earning, spending: Bankers' summit to set rules of trade

Central bank sits with banking high-ups today

SIDDIQUE ISLAM | Thursday, 26 May 2022

A bankers' summit meet is going to set rules on how to manage the ongoing volatility on Bangladesh's foreign-exchange market, in the cusp of a global financial crunch.

Officials say the central bank will sit with top bankers today (Thursday) with this contingency task on top of the agenda.

The issues of quoting rates to the overseas exchange houses engaged in remitting money alongside avoiding encashment of export proceeds of other banks' clients are expected to dominate the day's crucial discussions.

The Bangladesh Bank (BB) has already invited top leaders of the Association of Bankers, Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers' Association (BAFEDA) to take part in discussion on latest forex situation at the joint meeting, according to the officials.

"We'll take the next course in line with the top bankers' opinions at the meeting," a senior BB official told the FE Wednesday while replying to a query.

The meeting will be held at the central bank headquarters in the capital with BB Governor Fazle Kabir in the chair.

Meanwhile, ahead of the meeting, the central bank has suspended implementation of a latest directive on quoting rates to the overseas exchange houses until further instructions are issued.

Earlier on Tuesday, the BB issued a fresh directive for quoting rates to the overseas exchange houses engaged in remitting money, aiming to rein in volatility on the forex market.

The authorised dealer (AD) banks have been asked not to quote higher than the BC (bills for collection) selling rate under any circumstance, according to the directive.

"We've suspended execution of the directive mainly due to today's joint meeting with the ABB and BAFEDA," another BB official explained.

Market operators, however, fear that the inflow of remittances through official channels may fall significantly if the central bank revives the suspended order further.

They also say higher gap between formal banking-channel exchange rate of the US dollar against the Bangladesh Taka (BDT) and compared to that on kerb market will encourage illegal hundi activities further in the near future.

Currently, there is a gap of around Tk 7.50 after adding 2.50-percent cash incentives for inward remittances between the exchange rate of cash dollar on the open market, known as kerb market, and the overseas exchange houses for remitters.

Meanwhile, the government has already raised the cash incentives on inward remittance to 2.5 per cent from 2.0 per cent, aiming to encourage the remitters for sending their money through official channels instead of the illegal 'hundi' system.

The US currency was quoted at Tk 87.90 each on the inter-bank market on Wednesday -- unchanged from the previous level -- while the rate for the sale of bills for collection, generally known as BC, was Tk 88.00.

On the other hand, the US currency was traded at around Tk 98 on the kerb market on the day-also almost unchanged from the previous level.

"The authorities concerned should take effective measures immediately to minimize such exchange-rate gap that will help improve the inflow of remittance through the banking channel," a senior official of a leading private commercial bank (PCB) told the FE.

The BAFEDA has already submitted a six-point proposal, including maintaining a benchmark in quoting foreign-currency-exchange rate to the overseas exchange houses, to the central bank for stabilising the ongoing volatility.

As per the BAFEDA suggestions, the exchange rate to be quoted by the authorised dealer (AD) banks for overseas exchange houses will be Tk 0.10 less per US dollar than that of the inter-bank rate.

Some banks, however, traded the US currency ranging between Tk 94 and Tk 96 for settling import-payment obligations of the customers bypassing their announced rate at Tk 88.00.

"The issue is likely to be discussed at the meeting," another BB official said, without elaborating.

However, the central bank is providing the foreign-currency liquidity support to the banks continuously on a priority basis to settle their import-payment obligations.

As part of the remedial move, the BB sold $50 million directly to three scheduled banks Wednesday to help in settling import payments.

The central bank has so far sold $5.81 billion from the reserves directly to the commercial banks as liquidity support for settling their import-payment obligations in the current fiscal year (FY), 2021-22.

Bangladesh's forex market witnesses a volatile situation mainly due to higher outflow of foreign exchange following 'hefty growth' in import payments compared to the inflow in the last few months.

The local currency has lost its value by Tk 2.10 or 2.45 per cent since January 2022. The dollar was traded at Tk 85.80 on January 08 last.

The operators, however, say lower remittance inflow also pushed up pressure on the country's foreign-exchange coffers recently.

The flow of inward remittances dropped more than 16 per cent to $17.31 billion during the July-April period of the FY '22 from $20.66 billion in the same period of the previous fiscal.

[email protected]