BB buys $313m more from 22 banks

Bangladesh Bank purchased another $313 million from 22 commercial banks in an auction yesterday, reacting to the sharp drop in the US dollar rate.

The cut-off rate was Tk 121.5 per dollar, said a senior official of the central bank, seeking anonymity.

Due to the central bank's intervention, the inter-bank exchange rate (selling) stood at Tk 121.5 yesterday, up from Tk 120.1 a day earlier.

Over the past week, the exchange rate of the American greenback continued to fall against the local currency.

To tackle the sharp fall, the banking regulator on July 13 bought $171 million from 18 commercial banks through an auction — the first such move under the floating rate system.

Areif Hussain Khan, executive director and spokesperson of the central bank, told The Daily Star that the regulator acted to prevent excessive volatility.

"We want to keep the forex market stable, because both a rise and a fall are not good indicators," he said. "If the dollar weakens too much, exporters and remitters feel discouraged and suffer losses."

However, Zahid Hussain, former lead economist of the World Bank's Dhaka office, criticised the central bank's move amid high inflation in Bangladesh.

The economist argued that allowing the dollar rate to drop further could help contain inflation.

He added that bringing the rate down from Tk 120 to around Tk 110 could have made a remarkable difference in taming inflation.

"So, the question is, why is this opportunity to curb inflation being missed?"

The purchased US dollars will be added to the foreign exchange reserves, according to BB officials.

As of July 10, forex reserves stood at $24.54 billion under the BPM6 calculation method of the International Monetary Fund, up from $21.06 billion a year earlier.