Markets to control dollar exchange rate under strict vigilance

The Bangladesh Bank has introduced a change in the process of fixing the price of US dollars after long negotiations with the International Monetary Fund (IMF). The central bank has left the issue on the market and the clients.

That means, the dollar prices will be more market-based under strict monitoring. The initiative has been taken as part of meeting conditions imposed by the IMF. However, there are still doubts whether the system will be completely market-based or not.

The Bangladesh Bank said they have initiated strong vigilance to keep the dollar prices close to the price fixed by the central bank. Besides, a new fund has been formed with USD 500 million from the reserve to meet the demand of dollars in case of any emergency.

Bangladesh Bank (BB) governor Ahsan H Mansur disclosed the decisions in a virtual press conference from Dubai of the United Arab Emirates on Wednesday.

The BB governor said, “Our overall economy has regained stability and we were waiting for this moment. We were negotiating with the IMF regarding when to leave the dollar prices on the market. There hasn’t been any change in the dollar exchange rate and the central bank didn’t intervene either. The BB didn’t even sell any dollar.”

He pointed out, “Without any foreign help, we purchased dollars from the market to enhance our reserve. This comfortable situation is the result of a 30 per cent rise in remittance and government cost cutting.”

Ahsan H Mansur further said, “However, market-based price doesn’t mean that dollars could be sold at any price. The dollar prices have to be fixed reasonably depending on our supply and forecast. In case of any emergency, the Bangladesh Bank will help. We won’t tolerate any syndicate in the dollar market. The price of dollars will be determined in the country, not in Dubai.”

Following the press conference of the governor, the BB issued a gazette notification in this regard, which asked the banks to inform the central bank about the market price of dollars twice a day.

The notification also discarded the provision of the difference of Tk 1 between the purchase and selling price, which means the official instructions in this regard no longer exist.

The central bank has already started monitoring by sending officials to different banks. The banks brought remittance yesterday at a rate of Tk 122.70 per dollar. They sold dollars at a rate of Tk 123.50. The price was Tk 124 in the open market.

Meanwhile, IMF Bangladesh Mission chief Chris Papageorgiou in a statement recommended increasing flexibility in exchange rate and further strengthening the forex reserve. He also stressed on implementation of the new system of exchange rate.

The method followed by the Bangladesh Bank to fix the dollar exchange rate is known as the crawling peg system. Under this system, the dollar prices can be raised or declined by a maximum of 2-5 per cent. The difference of dollar prices from that could be a maximum of Tk 1. As such the price of dollars should be within Tk 123. However, dollars are being sold at a price higher than that.

The BB now has decided to make dollar prices more market-based.

The gazette notification issued regarding this on Wednesday said the approved branches of banks for foreign currency transactions (AD branches) can fix the dollar exchange rate through discussion with their clients and dealers on their own.

The AD branches will provide information regarding the sale of foreign currencies twice a day.  If any bank transacts more than USD 100,000, then it will have to inform the central bank within 11:00 am. Besides, within 5.30 pm, the AD branches will have to inform the central banks about all the foreign exchange transactions that took place from 11:00 am to 5:00 pm.

Besides, they will have to provide a reference price based on daily purchase and sell. These reference prices of different banks will be published daily on the BB website.

Meanwhile, the managing directors of the banks were asked to transact at the market rate. However, they also have been asked to monitor strictly to ensure that the market price does not differ much from the current government fixed price.

The bank officials have said the remittance is growing ahead of the Eid. The foreign reserve of the country has been stable for the past few months. Besides, there have been notable improvements in terms of balance of transaction. So it is high time to decide regarding the prices of dollars.

Speaking to Prothom Alo, Mutual Trust Bank (MTB) managing director Syed Mahbubur Rahman said, "There hasn’t been any complication regarding dollar prices in the last two months. Apart from publishing the reference price, the BB will also monitor the market price. The banks will have to fix the price cautiously."

Mentioning that the country is seeing a healthy expatriate income now, he stated, "So there won’t be any severe impact on the dollar prices right now. Let’s see how long it sustains. I hope it's the dawn of the comfortable period centering the dollar market."

Although the banking sector of the country is mired in nonperforming loans, anonymous loans, liquidity crisis and mismanagement, the central bank is in a relatively comfortable situation in terms of management of foreign currency and reserve.

The instability in the dollar market, which emerged in the beginning of 2022, ended with the fall of the Awami League government. Expatriate incomes through legal channels have increased as money laundering declined. Besides, the financial statement has reached a surplus from the deficit. The deficit in the current account is also dwindling.

Expatriates have sent around USD 25 billion, through different legal banking channels in the first 10 months of 2024-25. The country saw the highest remittance before this in the 2020-21 fiscal. Expatriates sent more than USD 24 billion that year.

Meanwhile, according to the IMF BPM-6 method, the country’s foreign reserve stands at more than USD 20 billion after clearing the bills of Asian Clearing Union (ACU). The total reserve is more than 25 billion.

Amid this situation, the government is expecting to get USD 3.5 billion from IMF and other donor countries. Besides, the next tranche of the IMF loan is scheduled to be approved by the next month. So the reserve will increase further in the coming months.

Mentioning that they are getting global support to reform the banking sector due to the regularity of the IMF loan, the BB governor said, “We hope our decision regarding the dollar exchange rate is right. We hope the market will support us and the dollar price won’t deviate much from the current price.”

Expressing that the entire nation has to play a role to ensure stability in the dollar market, Ahsan H Mansur further said, “There is nothing to be worried about the dollar price. If everyone continues with their normal work, then everything will go normally.”