The Bangladesh Bank (BB) has said the official price of dollars won’t be market-based ahead of the upcoming parliamentary elections. The central bank has cited three reasons behind this decision. They said three major economic indicators - the current account, financial account and revenue account - of the country have been showing negative trends.
The central bank argued the foreign reserve could dwindle further if the dollar exchange rate is left on the market to be fixed.
BB governor Abdur Rouf Talukder gave such directives during a meeting with the managing directors of 15 private banks on Wednesday, according to the sources present in the meeting.
According to the central bank, the country’s foreign reserve was USD 41.8 billion at the end of the 2021-22 fiscal, which dwindled to USD 26.84 billion as of 11 October. However, as per the calculation method of the International Monetary Fund (IMF) the reserve stood at USD 21.07 billion. It has been learnt that the net reserve stands below USD 17 billion now.
According to the sources present in the meeting, the central bank said leaving the dollar price on the market could result in a further decline in the forex reserve which could affect the import of daily commodities. As a result, the price of consumer products may spike further.
Therefore, the central bank stressed speedy repatriation of export income instead of hoping that the price of dollars would be market based. Some USD 9 billion of export earnings from the 2022-23 fiscal and USD 3 billion from the current fiscal have not been realised yet, the central bank said. The central bank emphasised speedy repatriation of unrealised export earnings.
It was said in the meeting that the central bank governor is trying hard to get dollars from abroad to improve the financial indicators of the country. He will visit several countries in the coming days to this end.
When the issue of leaving the dollar price on market was raised in the meeting, the governor said that efforts are on to make the dollar price market based. However, a new method will be adopted for this. The officials are being sent to training for this, he said.
The prevailing uncertainty in the financial sector will disappear once the political instability dissolves after the next parliamentary election, the BB governor hoped.
Deputy governor of the BB, Kazi Saidur Rahman and Abu Farah Md Naser were present among others in the hour-long meeting.
Speaking to Prothom Alo, BB spokesperson Mezbaul Haque said, “There were discussions regarding the initiatives taken by the central bank and its impact on the market in the meeting. The banks said that the interest rate is rising. As a result, disbursement of loans will decrease.”
The banks have been advised to deal with the situation cautiously and maintain this until the inflation is under control, he stated.
Mezbaul Haque further said, “We are expecting the situation to improve within two or three months. Until that, the dollar price will be fixed as per the rules of the Association of Bankers (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA). We don’t have any plan to leave the dollar price on the market right now.”
The ABB and BAFEDA are now in charge of fixing dollar price at the advice of the Bangladesh Bank. Currently, the official price of a dollar is Tk 110 for remittance and export earnings and Tk 110.5 for import.
A senior banker, present in the meeting, told Prothom Alo that they felt the central bank would not be as strict as now in the coming days regarding the implementation of the official dollar price. The BB officials, however, did not make any promise. Besides, the officials, who were fined for selling dollars at higher rates, may get a pardon as everyone will be needed to find a solution to the problem, the banker added.
Apart from the managing directors of the City Bank, Eastern Bank, Prime Bank, Mutual Trust Bank and Dutch Bangla Bank, MDs of 10 other banks, whose treasury heads were fined, were present in the meeting. These 10 other banks are – Social Islami Bank, Al-Arafah Bank, Mercantile Bank, Modhumoti Bank, Midland Bank, BRAC Bank, Exim Bank, Premier Bank, Shahjalal Islami Bank and Trust Bank.
According to sources in the meeting, some banks are bringing remittances at a price higher than the official price at the advice of the BB. However, these banks are not being able to maintain the higher price of dollars in case of export. The banks proposed to discuss with Bangladesh Bank about what to do in such a situation. However, the BB official did not make any remark regarding this. Therefore, several bank MDs present in the meeting felt that there is no problem in selling dollars, purchased at higher rates, at a rate higher than the official price.
Export earnings should be repatriated speedily
Speaking to the newspersons following the meeting, ABB chairman and BRAC Bank MD, Selim RF Hossain, said that there will be no benefit even if the exchange rate of dollar is brought to the level of hundi (illegal way of sending foreign currency to country) to increase the inflow of remittance. If the dollar exchange is raised to Tk 130, then the hundi traders will offer Tk 140.
The fact is that the dollar exchange rate does not matter to the money launderers. They will launder money at any rate as it is black money, he added.
Speaking regarding the dollar price in the open market, Selim RF Hossain said around USD 30-40 million is transacted every year in the open market. However, the amount is quite low considering the size of the Bangladesh market. So there is no need to consider the dollar rate in the open market as the standard.
ABB vice-chairman and City Bank MD Mashrur Arefin told Prothom Alo, "The central bank governor has asked us to focus on repatriation of the export income. We have to set the course of our action considering all the crises prevailing in the financial sector."