Tuesday, 27 September, 2022

Forex reserves under strain, dip below $40bn

The central bank is selling US dollars to meet the huge demand of import bill payments every day while the remittance inflow shrinks

Bangladesh's foreign exchange reserves slipped below $40 billion, the lowest in two years, following the central bank's payment of import bills to Asian Clearing Union (ACU).

The central bank is also continuously selling dollars to stabilise the money market, which might have an impact also on the reserves.

Forex reserves declined to $39.77 billion on Tuesday as Bangladesh Bank paid nearly $2 billion to the ACU last week, according to the central bank data.

The reserves have been under strain for the past couple of months due to a surge in the import bills and a drop in the inward remittances.

The data showed that the forex reserves surged to as high as $48 billion in August 2021. But it dropped to $41.86 billion at the end of June 2022 and stood at slightly over $42 billion on July 07 after an unusual rise in imports.

The record inflow of over $900 million remittance during the seven days of Eid-ul-Azha was not enough to offset the decline in forex reserves as the central bank is continuously pumping dollars into the market, Bangladesh Bank officials said. 

In the just concluded 2021-22 fiscal year, Bangladesh Bank sold over $7.62 billion to prevent the free fall of taka’s value against the greenback. In the first 12 days of FY 2022-23, the banking sector regulator sold $470 million. 

Bangladesh Bank officials (forex reserves and treasury) said the reserves would have remained over $40 billion even after the ACU payment if the US dollars were not sold at such a pace. 

 “Given the higher pace of remittance inflow ahead of Eid, it was predicted that the reserves would remain above $40 billion. But it did not happen because of the sale of dollars,” said an official seeking not to be named.

The central bank official, however, expected that the reserves would again surpass the $40 billion mark very soon.

Md Serajul Islam, executive director and spokesperson of Bangladesh Bank, said that the central bank was selling US dollars to meet the huge demand of import bill payments every day.

He said a fall in inward remittance and rising demand of imports are the reasons behind the fall in the foreign exchange reserves. Bangladesh's forex reserves witnessed a fall as              import volume in the fiscal year 2021-22 increased to about $78 billion, while foreign exchange gained from remittance and exports, standing at $73 billion.The export earnings in FY 2021-22 stood at $52.08 billion and the inward remittances totalled $21.03 billion. The inward remittance dropped to $21.03 billion in FY 2021-22 from $24.77 billion a year ago.

Immediately after taking office on Tuesday, new Bangladesh Bank Governor Abdur Rouf Talukder said taming inflation would be the central bank's top priority.

Talukder also stressed the need for bringing back stability in the foreign exchange market by stabilising the exchange rate between the Taka and the US dollar.

The new governor said he would deliver his best to ensure credit flow to the private sector and generate new jobs. He said the financial sector watchdog would work hard to help the government achieve the desired growth in the gross domestic product (GDP).