Inflow of foreign currencies, the US dollar in particular, is feared to falter as several banks stopped buying the greenback for a wait-and-see watch on the volatile forex market, bankers said.
They point out that Bangladesh Bank (BB) in its bid to ease the persisting unsteadiness on the foreign-exchange market recently issued instructions to both commercial banks and global exchange houses not to buy the dollar from the remitters beyond the official rate to avert strict action by the central bank.
Shortly after the directive, several banks started adopting go-slow approach and stopped sourcing the dollar from the exchange houses only to observe the manner of the market-players under the ongoing market situation.
On the other hand, few of the banks claim they offer dollar at the official rate to the exchange houses but are getting lesser volume of the greenback that is in high demand here and worldwide.
The forex market turned extremely volatile in recent days after overseas exchange houses kept selling the US currency at Tk 120-124 apiece in a flagrant violation of the official rate at Tk 116.
The FE correspondent talked to top executives of twelve commercial banks Tuesday-Wednesday regarding the current state of the forex market close on the heels of depletion of the country’s forex reserves.
Four of them said they temporarily skipped purchasing dollar as part of their market-monitoring moves while three others informed about buying limited volume of the American currency in this critical period of time tempered by various crises across the world.
Seeking anonymity, the managing director and chief executive officer of a private commercial bank said the exchange rate of the US dollar from the exchange houses shot up as high as Tk 124 a week ago and the forex-starved commercial banks were seen purchasing the greenback at much higher than the official rate to meet their overseas-payment obligations.
Few days ago, the central bank prohibited the commercial banks from buying dollar beyond the official rate. “After the instruction, we’ve stopped buying dollars. In fact, we’re now observing the movement of the market. I think the next 7-10 days are very important for us,” he said.
The top executive of another scheduled bank said they purchased a dollar at rates in-between Tk 118 and Tk 120 even couple of weeks ago from the exchange houses. But the BB asked them to go by the official rate in terms of buying and selling dollars.
“So, many banks like us are forced to incur losses in selling the greenback because of the latest directive of the BB. We’re now moving cautiously and observing the market closely. We’re not focusing on buying dollars,” he added.
The managing director and chief executive officer of an unconventional bank, who also preferred not to be quoted by name, said they decided to follow the BB order. “We moved to several exchange houses for the last couple of days to source US dollar at the rate fixed by the BB. But we got one-third of our requirement. It means the exchange houses also take slow-going approach.”
The senior banker said the inflow of foreign currencies, remittance in particular, might be impacted badly because of the go-slow posture being adopted both by banks and exchange houses.
Explaining reasons behind the volatility, a BB official said the ABB and BAFEDA earlier announced that the commercial banks could offer a maximum of 2.5-percent incentives to remitters from their Corporate Social Responsibility (CSR) or own funds in addition to 2.5-percent incentives from government coffer.
Later, another decision comes allowing the banks to pay more to get more dollars amid the forex dearth, which is, basically, creating the trouble as banks went for bagging more forex distorting the market.
“The central bank’s stance is quite clear–it will not allow anyone to violate the official rate and it is strictly following the market,” the official said, adding that the exchange rate not only in the banks but also on the kerb market keeps falling fast as it now dropped to Tk 123-Tk124 on the informal market.
Contacted over the conundrum, former lead economist of World Bank’s Dhaka office Dr Zahid Hussain said there is no stability in the country’s exchange-rate policy and that is creating confusion in the market.
Citing the MPS (monetary policy statement) released by the BB, the renowned economist said the central bank in the MPS mentioned making an unified exchange rate by September 2023 and reached the target. But, he said, the latest ABB-BAFEDA decision to bag more foreign currencies brought back regime of multiple rates with the reintroducing of different rates for exporters and remitters, which is unexpected.
“Such frequent shifts in exchange-rate policy confuses the market and encourages speculative behaviour,” Mr Hussain says about the dollar doldrums.
Remittance flow into Bangladesh spiked to US$1.98 billion in October from US$1.33 billion the month prior, according to the BB.