BB buys $83 million from banks

The Bangladesh Bank (BB) has purchased $83 million from 11 commercial banks in an auction yesterday, reacting to the sharp drop in the US dollar rate.

A senior central bank official, speaking anonymously, said the cut-off rate was set at Tk 121.50 per dollar. Under the multiple price auction method, exchange rates ranged from Tk 121.47 to Tk 121.50.

To curb any steep decline of the dollar against the taka, the central bank had previously bought $484 million last month in two phases through separate auctions with several commercial banks, marking its first such interventions under the floating exchange rate system.

According to BB officials, the greenbacks purchased in the auction will be added to the country's foreign exchange reserves.

As of August 8, Bangladesh's forex reserves stood at $25.12 billion, based on the International Monetary Fund's calculation method, up from $20.48 billion a year earlier.

Central bank sources explained that the regulator acted to prevent excessive volatility in the foreign exchange market. They emphasised that both sharp rises and falls in the dollar rate are undesirable.

The regulator aims to keep the forex market stable, as both a rise and a fall are not good indicators. If the US dollar weakens too much, exporters and remitters feel discouraged and suffer losses. On the other hand, if the dollar strengthens, it will lead to increased import cost, inflation pressure, higher debt servicing cost and a myriad of other effects.

Economists, however, previously criticised the central bank's move to buy dollars amid high inflation in Bangladesh, arguing that allowing the dollar rate to drop further could help contain inflation.

Bringing the rate down from Tk 120 to around Tk 110 could have made a remarkable difference in taming inflation, they said.

In its monetary policy for July-December this year, the BB reiterated its focus on exchange rate management. It plans to leverage expected robust remittance inflows and improved foreign exchange reserves to shield the economy from external shocks.

"Ongoing efforts by the government to monitor the market, facilitate trade, and provide policy support are expected to alleviate price pressures further," the policy document stated.

The BB sold $508.38 million in the FY25 mainly to meet payment obligations of government agencies, primarily for  fuel, electricity, and fertiliser imports.