Dollar rate rises in Bangladesh, central bank moves to monitor forex transactions

Bangladesh Bank has stepped up monitoring of foreign exchange transactions as the taka has weakened against the US dollar over the past five weeks.

On Tuesday, the interbank rate climbed to Tk 122.85 per dollar, marking a rise of Tk 0.55 over the period, after standing at Tk 122.30 on Mar 1 when the local currency had begun to strengthen on improved dollar supply in banks.

At that time, the central bank had absorbed excess dollars from commercial lenders to hold the rate steady.

Since Governor Moshtaqur Rahman took charge, Bangladesh Bank last purchased $25 million from the market on Mar 2 at a cut-off rate of Tk 122.30.

So far, in the current fiscal year, the central bank has bought a total of $5.49 billion, equivalent to around Tk 673 billion.

Now, after five weeks, the strategy is shifting, with plans to sell dollars to stabilise the market, even as banks hold nearly double the foreign currency compared with March after adjusting for liabilities.

Market chatter has grown over possible depreciation of the taka, driven by higher import-export costs linked to tensions in the Middle East.

Traders’ body Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) raised complaints to the governor on Monday, accusing some banks of charging higher dollar rates to businesses.

Following the meeting, FBCCI Secretary General Md Alamgir relayed that the governor assured them there is no shortage of greenbacks.

He noted that the governor ruled out any chance of increasing the exchange rate and promised swift action against anyone found manipulating prices.

Despite that, the dollar has continued to edge up, leading Bangladesh Bank to tighten supervision of foreign exchange transactions across the banking sector.

Import payment pressure has eased after Ramadan, while remittance inflows crossed $3.75 billion in March.

This has lifted reserves to $29.85 billion under BPM6 (Balance of Payments and International Investment Position calculations), with gross reserves standing at $34.47 billion.

Bangladesh Bank assistant spokesperson Md Shahriar Siddiqui said a review of recent trends shows the foreign exchange market remains stable and balanced, with no immediate pressure for depreciation of the taka.

Official data shows the banking sector currently holds $3.9 billion in foreign currency liquidity, up from $2.3 billion a month ago.

The Net Open Position (NOP) of commercial banks -- calculated after deducting foreign liabilities -- stands at $1 billion.

Although the regulator typically buys dollars when the NOP exceeds $700 million, it has refrained from doing so recently as banks are not keen on selling surplus holdings due to low demand for the taka.

Siddiqui pointed out that if the exchange rate were truly unstable, the central bank would have bought more dollars to swell reserves.

A senior Bangladesh Bank official said the central bank is prepared to sell up to $200 million to commercial banks if needed to stabilise the dollar rate, making clear that it will not allow the taka to depreciate.

He warned that groups often try to exploit economic uncertainty for profit, adding that the current Middle East conflict has created such an opening.

According to him, rumours are being spread to fuel panic, while the central bank has already begun reviewing all foreign exchange transactions and will act immediately if irregularities are found.

State-owned banks are leading the move to increase NOP, with Sonali Bank also building reserves on expectations of rising future fuel costs, having already accumulated around $200,000.

Former World Bank Dhaka office lead economist Zahid Hussain said uncertainty over future exchange rate movements is prompting banks to hold onto dollars as a precaution.

He noted that when expectations build around a possible rise in exchange rates, those holding dollars tend to delay selling them, while banks move to increase reserves to manage future liabilities and global risks, which can in turn reinforce perceptions of an impending rate shift.