The central bank ended the year with net reserves of about $17.7 billion in December, meeting the International Monetary Fund’s criteria for Bangladesh to receive the third tranche of the $4.7 billion loan package, a senior central bank official said. It also exceeded.
To meet the conditions set by the IMF, Bangladesh Bank aimed to maintain net reserves of $17.78 billion by December 2023.
Despite the reserve crisis, the central bank sold a record $6.7 billion to banks in the six months (July-December) of the 2023-24 financial year. Dollar sales for the same period last year were $7.8 billion.
Bankers said the central bank was under pressure to meet its import obligations for essential goods such as oil, gas and fertilizer. Meanwhile, dollars had to be raised in various ways to maintain reserves in accordance with IMF conditions.
A senior central bank official said the central bank purchased $1.04 billion from banks in the six months of fiscal 2024, compared to very limited purchases in the previous year.
He said most banks are running out of dollars. Still, Bangladesh Bank has managed to purchase dollars from various banks to maintain its foreign exchange reserves.
Meets IMF requirements
As of December 28, the central bank held foreign exchange reserves of $21.7 billion based on the BPM-6 standard.
When calculating the IMF’s net reserves, it was necessary to exclude debts to the Asian Clearing Union (ACU) and bills due within a year. This resulted in a $4 billion difference between gross and net reserves.
A spokesperson for Bangladesh Bank Mezba-ul-Haq said that one of the important responsibilities of Bangladesh Bank is to maintain foreign exchange reserves. They both buy and sell dollars from banks.
Regarding how they procured dollars during the shortage, he said, “Some banks hold foreign currencies, but are facing difficulties in cash transactions. They sold foreign currencies to central banks.” Ta.
On December 26, the central bank purchased $200 million from Islamic banks and another $100 million from various banks, for a total of $300 million.
For the past three years, Bangladesh Bank has been consistently selling dollars from its reserves to commercial banks. In FY2022, it sold $7.62 billion and in FY23, it sold $13.58 billion to settle import bills.
dollar rate discrepancy
Currently, banks sell dollars to the central bank for Tk 110 and recover remitted dollars for Tk 109.50.
In addition, banks can offer incentives of up to 2.5% from their own funds for the recovery of remitted dollars.
Importers often have to purchase dollars at a higher price than the declared rate, but some influential traders have managed to secure dollars for import at slightly lower rates. .
As per the Bangladesh Foreign Exchange Dealers Association (Bafeda) directive, banks are supposed to buy remitted dollars at a maximum rate of Taka 109.50. However, some banks collect remittances at rates ranging from Taka 120 to Taka 122.
The shortage of dollars at designated banks is evident when looking at the amount of foreign currency net open positions (NOPs) held. Approximately 20 banks currently hold his NOP short position.
The head of finance at a state-owned bank explained that the high dollar value is not only due to banks’ long positions. Many banks have also reduced imports due to limited dollar flows, resulting in long positions due to reduced import debt.
A bank’s foreign exchange net open position (NOP) is the difference between its foreign currency assets and liabilities at a particular point in time. Long-term NOP occurs when assets exceed liabilities, and short-term NOP occurs when liabilities exceed assets.