Bangladesh Bank bought $50 million from commercial banks through an auction on Tuesday, its first such purchase in nearly three months, as increased dollar supply in the market pushed prices down. The central bank bought the dollars from four banks at 122.75 taka each.
The purchase was carried out Tuesday afternoon. Bangladesh Bank had last bought dollars from commercial banks on May 20.
Bangladesh Bank spokesperson Arif Hossain Khan confirmed the information.
Bankers said the dollar market showed a downward trend Tuesday morning. At the time, commercial banks were buying dollars from remittance houses at 122.30 to 122.40 taka each, while the rate for settling import liabilities, or LCs, ranged between 122.50 and 122.60 taka.
Supply increase had been pushing dollar prices down
Bankers say commercial banks currently hold a relatively large dollar supply. At the same time, the pressure of settling import liabilities has eased compared with before. With private-sector credit growth weak, demand for foreign currency for imports has also been low. As a result, with dollar supply outpacing demand, prices had been falling in recent times.
Against that backdrop, those familiar with the matter believe Bangladesh Bank decided to buy dollars to prevent prices from falling further. However, one banker said dollar demand could rise somewhat again next month, when the Bangladesh Petroleum Corporation (BPC) is due to make some payments.
There was no indication in the market Tuesday morning that Bangladesh Bank would buy dollars. Commercial banks were informed of the central bank’s dollar purchase around 1 p.m. Typically, when Bangladesh Bank buys dollars from the market, banks are notified by 11:30 a.m. As a result, banks settled various businesses’ LCs at comparatively lower rates Tuesday morning, and remittance dollars were similarly bought at lower rates. Prices rose somewhat in the market that afternoon after Bangladesh Bank announced it was buying dollars at 122.75 taka. Several commercial banks then set the rate at 122.75 taka for both remittance dollar purchases and LC settlements.
Sharp swings in dollar price over 15 days
Bankers say the dollar rate has swung significantly over the past two weeks. Toward the end of last week, the rate had risen to as high as 123.65 taka. Before that, two weeks earlier, it had fallen to 122 taka. That swing of nearly 1.5 taka within a short period has created uncertainty among bankers, importers and other customers alike. Many customers are now showing interest in securing dollars in advance through forward booking to reduce their risk.
One banker said that if the central bank had announced its dollar purchase earlier, commercial banks would not have bought remittance dollars or settled LCs at such low rates that morning. Even though dollar prices had begun falling again from early this week, there was no clear sense of when the central bank might intervene in the market. Against that backdrop, bankers believe Bangladesh Bank’s purchase of $50 million at 122.75 taka on Tuesday signals a possible floor for the dollar in the market.