BB bailout for banks amid dollar crunch

The central bank ramps up foreign-currency liquidity support to the scheduled banks trying to manage Bangladesh's volatile forex market amid a global financial crunch, officials say.

As part of the move, the Bangladesh Bank (BB) has sold US$392 million direct to the commercial banks in last four days of the outgoing week to help them meet growing demand for the greenback.

On Thursday, $108 million was fed to five dollar-hungry banks, while $80million, $96 million and $108 million were provided mostly to state-owned commercial banks (SoCBs) on Wednesday, Tuesday and Monday respectively, according to officials.

"We've strengthened our foreign-currency liquidity support to the banks for reducing mismatch between inflow and outflow of the foreign exchange in the market," a senior BB official said.

The central bank has so far sold $5.50 billion from the reserves directly to the commercial banks as liquidity support for settling their import-payment obligations in the current fiscal year (FY) 2021-22.

Such liquidity support is being used for settling import payments, particularly for six essential items, including fuel oils.

Other items are LNG (liquefied natural gas), food-grains, fertilizers, coronavirus vaccines and electricity, according to the officials.

The BB official also said the central bank may continue providing such foreign-currency support to the banks in line with the market requirement.

Actually, the BB has expedited its liquidity support to the banks since May16 while the local currency lost its value by 80 paisa on the inter-bank foreign-exchange (forex) market--a bigger depreciation of the local currency in a single day against the US dollar after nearly two decades.

Currently, the Bangladesh Taka (BDT) is maintaining a depreciating mode against the US currency mainly due to higher outflow of foreign exchange following 'hefty growth' in import payments compared to the inflow in the last few months.

The local currency has depreciated by nearly 2.0 percent or Tk 1.70 since January this calendar year following higher demand

for the greenback for settling import-payment obligations.

The dollar was quoted at Tk 87.50 each on the inter-bank market on Thursday--unchanged from the previous level. It was Tk 85.80 on January 08 this calendar year.

Market operators, however, say the demand for the US currency is still prevailing high mainly due to higher import payments, particularly for petroleum products and consumer items, including food-grains.

The dollar was quoted at maximum Tk 87.60 each for the sale of bills for collection, generally known as BC, on the day--unchanged from the previous level. In some cases, the banks quoted the US dollar between Tk 91 and Tk 95 for settling import-payment obligations of their customers instead of Tk 87.70, they added.

Meanwhile, lower remittance inflow also pushed up pressure on the country's foreign-exchange market recently, according to the operators.

The flow of inward remittances dropped by more than 16 per cent to $17.31 billion during the July-April period of the FY '22 from $20.66 billion in the same period of the previous fiscal.

Treasury head of a leading private commercial bank (PCB) said the country's forex market is still facing a big mismatch between inflow and outflow of foreign exchange despite higher export earnings in recent months.

"But the latest BB move will help reduce the demand-supply gap of the greenback on the market," the treasury head explains.

He also says: "It will also help restore stability on the forex market from the ongoing volatile situation."