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After weeks of regulatory-intervention-driven stability, Bangladesh's foreign-exchange market suddenly starts heating up with exchange rate recording over 50-paisa rise in a day, officials and bankers said.
They said the taka-greenback exchange rates had risen on the market for the last couple of days but the major hike was observed Wednesday when the rate crossed over Tk 122.50 a dollar, according to the market players.
The abrupt rise has also largely impacted the reference rate of the Bangladesh Bank (BB) as it shot up to Tk 122.13 a dollar at 5.00pm Wednesday from Tk 122.02 recorded at the end of business hours a day before.
Although the banking regulator finds no valid reason behind such upswing, the market players pinpointed few factors, like BB's growing forex purchase from the market that put NOP (net open position) of many banks in short positioning.
Seeking anonymity, the treasury head of a private commercial bank said his bank, like several others, turned into the category of short positioning as they sold greenback to the central bank recently.
"Suddenly we have overseas-payment obligation this week. So, we have no other option but to source dollars from the market. I think this demand surge may cause the sudden price hike on the market," he said.
The senior banker defines that banks which have higher foreign-currency-payment obligations than the forex earnings are in the category of short positioning.
On the other hand, the banker said, there are some banks which have more foreign earnings than the spending to clear overseas transactions. They are in the category of long positioning. It means the banks have surplus in foreign exchange. "We purchased dollars from the interbank spot market at Tk 122.50 a dollar."
However, the exchange rate for bills for collection (BC) is much higher as banks have been charging importers in-between Tk 122.50 and Tk 122.80 a dollar.
Bangladesh Bank, as part of its market-intervention strategy, has purchased $2126 million ($2.126 billion) from the banks so far since July 13 last to prevent freefall of exchange rate on the forex market.
According to BB sources, the NOP in banks got reduced to around $700 million from over $1200 million in one and a half months.
On condition anonymity, the treasury head of another private commercial bank said a recent media report citing central bank governor Dr Ahsan H. Mansur that the IMF (International Monetary Fund) wants to release remaining loan tranches after consultation with the elected government.
"This message spreads too fast in the market and this created some sort of tensions in the market on the day," he told the FE writer.
Apart from that, he said, importers have booked their orders in advance to import essentials targeting upcoming Ramadan and Eid-ul-fitr in fear that the forex market may get volatile ahead of the upcoming parliamentary polls.
The treasury officials also informed that the exchange rate normally goes up from November every year when the volume of outward remittances increases. Multinational companies like telecoms and airliners used to repatriate their profits in this period of time.
These are the contributing factors behind the sudden demand-surge, according to them.
Contacted, a BB official said they don't have the exact clue why the market is showing such an upward trend. The demand increases a bit because of some payment for fertiliser and hajj-related affairs.
"But the demand is not too high to lead such market response. We need to analysis the market further to understand the current market behaviour," he added.
About the BB's ongoing dollar-buying approach, the central banker said the banking regulator will not make any intervention right at the moment as the exchange rate is within the undisclosed crawling-peg band.
"The BB comes to intervene once it (the exchange rate) goes below the floor rate or overshoots the upper ceiling of the crawling-peg band," the BB official explains.
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