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BB mulling fresh rules to manage forex volatility

Sits with top bankers today to discuss contingency measures


Siddique Islam | Sunday, 14 August 2022


The central bank is trying to set fresh rules on managing the volatility in foreign-exchange (forex) market and curb the falling trend of forex reserves.

As part of the latest move, the Bangladesh Bank (BB) is scheduled to hold a meeting with the top bankers today (Sunday) with this contingency task on top of the agenda, officials said on Saturday.

Revamping the inter-bank forex market along with fixing the spread between selling and buying rates of the US currency are expected to dominate the day's crucial discussions.

The central bank has already invited the leaders of the Association of Bankers, Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers' Association (BAFEDA) to take part in the meeting, according to the officials.

The meeting will be held at the BB headquarters in the capital with deputy governor Ahmed Jamal in the chair.

"There is no specific agenda, but all the crucial issues are expected to be discussed at the meeting," a BB senior official told the FE.

He said the central bank's ultimate goal is to bring stability in the forex market as soon as possible by considering the stakeholders' opinions.

The banks quoted a maximum Tk 95.00 for the sale of bills for collection, generally known as BC, to their customers for settling the import payments on Thursday.

Some banks, however, traded the greenback at rates ranging between Tk 95.00 and Tk 109 for settling the import-payment obligations, ignoring their announced rates, according to market operators.

On the other hand, the banks also quoted the dollar maximum at Tk 94.00 on the day to remitters as well as realised export proceeds or TT clean which remained unchanged from the previous working day.

Some banks, however, collected the export proceeds offering maximum Tk 107 instead of Tk 94 on the same day to meet their growing demand for the greenback, they added.

Currently, all the authorized dealer (AD) banks are allowed to keep the spread at maximum Tk 1.0 between selling and buying of the US currency in line with the BAFEDA's recommendation.

In September 2006, the BAFEDA had advised its member banks to maintain the spread at maximum Tk 1.0 for BC selling and TT clean buying of the US dollar.

"The issue is likely to come up for discussion at the meeting considering the ongoing satiation of the market," another BB official told the FE.

The banks now fix their exchange rates for smaller and retail transactions, including inter-bank ones, in line with the central bank's advice.

However, larger corporate transactions are priced in line with the much higher sourcing costs of overseas remittance sent by international exchange houses.

Meanwhile, ABB Chairman Selim R F Hussain had earlier urged all the stakeholders to help make the inter-bank forex market operative and vibrant to ease the ongoing pressure.

"We all must work together to make the inter-bank forex market operative to ensure sourcing of foreign exchange for all banks," the ABB chief said, while sharing his observations regarding the present volatility in the market, in an exclusive interview with the Financial Express (FE) on July 27.

Currently, the local currency is maintaining a depreciating mode against the dollar mainly due to higher outflow of foreign exchange following a 'hefty growth' in import payments compared to the inflow in the last few months.

Besides, complying with the BB's latest regulations on encashment of the value-added portion of repatriated export proceeds might be discussed at the meeting, according to the central banker.

Earlier on August 03, the central bank relaxed its regulations on encashment of the value-added portion of repatriated export proceeds aiming to bring flexibility to trade transactions.

Under the relaxations, all the AD banks have been allowed to retain the value-added portion of export proceeds in foreign currency for a maximum period of 15 days.

The value-added portion refers to the export proceeds that are available to exporters after their import bills for back-to-back letters of credit (LCs) have been settled.

On May 29 last, the central bank had asked the AD banks to encash the value-added portion of repatriated export proceeds by the following business day.

Meanwhile, the BB continues to provide its foreign-currency support to scheduled banks for managing the forex-market volatility.

Under the moves, the central bank sold $122 million more directly to different banks on Thursday to help them meet a growing demand for the greenback as global price rises have led to import-cost escalation with its resultant pressures on reserves of Bangladesh, as also of many other countries.

The BB has so far injected $1.72 billion from the reserves directly into commercial banks as liquidity support for import payments in the current fiscal year (FY), 2022-23.

In FY22, the central bank sold $7.62 billion from the reserves to the banks for the same purpose.

Bangladesh's forex reserves rose to $39.59 billion on Thursday from $39. 54 billion of the previous working day, following increased inflow of foreign exchange than outflow.

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