BB buys nearly $1b from market as dollar falls
The Bangladesh Bank (BB) has purchased around $1 billion in just
one and a half months as the dollar weakened against taka amid steady inflows
and subdued import demand.
Between 13 July and August, the central bank bought $948 million from
commercial banks through seven auctions, reversing its earlier approach of
selling dollars to contain the rapid depreciation of local currency taka and
support state agencies in paying import bills.
Over the past three years until fiscal year 2024-25, the BB sold
more than $25 billion from its foreign exchange reserves, largely to cover
import bills for fuel, fertiliser and food.
According to economists, a weaker dollar could hurt remittances
and exports, and the recent purchases by the BB are intended to maintain a
steady supply of the greenback.
After the fall of the Awami League-led government in August last year in a mass
uprising, the BB suspended dollar support for government imports amid low
foreign currency reserves.
Subsequently, a larger-than-usual inflow of remittances and
improved export earnings provided the interim government with some much-needed
relief.
In March this year, as foreign exchange reserves began to
rebound and the decline of taka slowed, the central bank began to purchase
dollars.
A senior BB official said the dollar purchase is to stabilise the forex market,
since sharp upward or downward movements are not good for the market.
Earlier, in May, the BB adopted a floating exchange rate regime
to meet conditions tied to a $5.5 billion International Monetary Fund (IMF)
loan programme, a year after introducing a crawling peg system under which the
exchange rate moved within a band.
Central bank officials said that despite the market-based
exchange rate, they would intervene if the rate rose above Tk 123 per dollar or
fell below Tk 121, maintaining the exchange rate band.
Yesterday, the dollar traded at Tk 121.72, according to central
bank data.
The purchases are also part of a plan to rebuild foreign
exchange reserves, which had fallen below $20 billion, raising concerns about
the country's ability to pay for imports, according to officials.
Reserves began to recover this calendar year thanks to higher
remittances, export earnings and a slow import growth. It reached $26.19
billion by August 28, according to the IMF's calculation method.
At the same time last year, reserves stood at $20.59 billion, BB
data show.
Areif Hussain Khan, executive director and spokesperson for the
BB, said the central bank intervenes to prevent excessive market volatility.
"We want to keep the forex market stable because neither a
big rise nor a steep fall is a good indicator. If the dollar weakens too much,
exporters and remitters feel discouraged and suffer losses," said Khan.
Ashikur Rahman, principal economist at the Policy Research
Institute, said low investment and reduced imports of capital machinery have
lowered demand for dollars.
"In such a situation, the taka could appreciate. If the
taka strengthens, both exports and remittances will be significantly
discouraged. To ensure they remain competitive, artificial demand for dollars
is being created through these purchases," he said.
He added that the buying supports exports and remittances while
helping rebuild reserves.
"If any shock hits in the coming days, this will allow the
authorities to manage it. In the current context, for the next six months, this
is the right strategy. Buying dollars to build up reserves essentially means
sustaining the positive momentum for remittances and exports," said the
economist.