Dollar stable at Tk92 as BB withdraws uniform exchange rate

The exchange rate of the US dollar remained stable at Tk92 on Thursday as most banks settled LCs at the rate after the Bangladesh Bank earlier in the morning asked them to quote the dollar rate based on market demand instead of the prescribed exchange rate.

The exchange rate was above Tk95 on Wednesday.

Asked what prompted the authorities to withdraw the uniform exchange rate, Md Serajul Islam, executive director and spokesperson of the Bangladesh Bank, told TBS, "The decision has been taken considering a decrease in remittance inflow through formal channels and the plight of exporters.

"The rate has been left to be fixed according to the market price to give priority to the foreign currency earners amid the volatile condition of the international market."

Banks behaved very rationally in dollar transactions on the day, said a senior treasury manager of a private bank. 

LC payments became stagnant after the Bangladesh Bank set the uniform rate, but normalcy returned soon after the fixed rate was lifted, he said. Dollar pressure was also down, he added.

Earlier, leaders of the Association of Bankers, Bangladesh (ABB) held a Zoom meeting with all top executives and treasury heads of banks on Thursday morning.

At the meeting, ABB leaders called bankers to behave rationally in dollar selling for the sake of the country, according to bankers. 

When contacted, Selim RF Hussain, chairman of the ABB and managing director of Brac Bank, said inter-bank transactions – the main liquidity source of foreign currency for banks – stopped after the central had introduced a uniform exchange rate, which is very dangerous for the banking industry. This is because, he said, if interbank transactions remain halted, any bank can default on foreign payment at any time, which will cause the country to earn a seriously bad reputation in the international market.

In this situation, bankers are working with the Bangladesh Bank to stabilise the market by lifting the uniform exchange rate, he mentioned.

He also said initially the rate may remain high but it will come down soon when banks will be comfortable with the new situation.

"From now on, the dollar rate will be set based on supply and demand. If demand is higher than supply, the rate will be higher."

He expressed hope that the rate would get stable at a lower rate soon. 

On Wednesday evening, ABB leaders met the Bangladesh Bank governor and convinced him to lift the uniform exchange rate system.

Earlier, on Sunday, the Bangladesh Bank unofficially set the import LC settlement rate at Tk89.15 per dollar and the interbank exchange rate at Tk89. 

However, the rate was ignored by most banks as the gap between the open market rate of the greenbacks and the LC settlement rate was more than Tk5. 

Moreover, the wide gap between the official rate and the open market rate encouraged remitters to send money home through illegal channels, causing the country's remittance earnings to fall. 

Amid this situation, the central bank lifted the uniform exchange rate on Sunday, only three days after its introduction. 

Bangladesh Bank Spokesperson Md Serajul Islam said several teams have been assigned to monitor the banks and oversee the foreign currency exchange of the banks.

Asked if the lifting of the dollar rate cap would affect inflation, he said inflation is also on the rise in other parts of the world.

"We are not out of the system. However, inflation can be controlled with some tools other than the dollar price. We are currently monitoring the situation and further action will be taken accordingly," he said.

In May, Bangladesh's remittance receipts fell 13% year-on-year to $1.88 billion, according to the Bangladesh Bank. 

Also, inward remittances in the first 11 months of the current fiscal year declined by 16% to $19.18 billion compared to the same period of the last year. 

Meanwhile, the country's export growth was 34.56% year-on-year in July-April when import growth was 41.42% during the period. But, exports increased 23.24% to $3.83 billion in May, according to the latest data. 

A top executive of the Bangladesh Bank said they have realised that a uniform exchange rate will not work as foreign exchange houses, which are not under their control, are selling dollars at higher prices. 

For instance, Western Union that has the largest network for receiving remittances is selling the US dollar to banks at higher rates than the official rate. And they are not bound to follow the Bangladesh Bank's official rate, he said. 

Amid this situation, the fixed exchange rate put pressure on the forex reserve as the Bangladesh Bank was getting huge requirements from banks for selling US dollars at the official rate, he said, adding that as a result, the reserves were shrinking fast. 

The Bangladesh Bank in the last two weeks sold around $1.5 billion to banks. 

The total dollar selling by the central bank crossed $6 billion this fiscal till Thursday. 

On the other hand, the foreign exchange reserves stood at $42.11 billion on 1 June, central bank data show.