Sunday, 2 April, 2023

Forex reserves stable despite pressure on dollar

The country's foreign exchange reserve has remained stable over the past few weeks following an injection of credit from the International Monetary Fund (IMF), according to a central bank official.

"As of Wednesday, the foreign currency reserve stood at $32.61 billion. Since the IMF loan was injected, we have sold some dollars to keep the market stable," said Mezbaul Haque, Executive Director at Bangladesh Bank, in an interview with the Daily Sun on Thursday.

Bangladesh received $476 million as the first installment of an IMF loan, which was added to BB's foreign exchange reserves on February 2. The BB has been injecting dollars into the market to meet the increasing demand for essential imports, which amounts to around $5.5 billion per month.

To maintain the stability of the forex reserves, economists have suggested increasing facilities for remittances of foreign currencies to keep up with the inflow of the greenback into the country. Former Bangladesh Bank Governor Dr. Salehuddin Ahmed doesn't see any immediate solutions to improve the dollar situation unless non-resident Bangladeshis are encouraged to send remittances through formal channels.          "Our export basket lacks diversification. In this situation, there is no alternative but to provide the highest facilities to NRBs to welcome remittances through banks. The government should also spend fewer dollars on projects to reduce pressure on the reserve," Prof. Ahmed told the Daily Sun.

The eminent economist suggested that the financial regulator should open up letter of credit (LC) facilities for different sectors like health, power, and energy to help the survival of the common people.

Remittance inflows increased slightly in the first half (July-December) of the current financial year compared to the same period of FY 2021-22, amid various initiatives taken by the government and the Bangladesh Bank.

According to BB data, remittance inflows increased to $10.5 billion in July-December compared to $10.23 billion in the same period last year.

Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB), believes that the dollar situation has improved in line with building confidence in the country's image since the IMF loan hit the central bank’s account.

"The IMF didn't give the loan for commercial purposes. It builds confidence in the reserve to stabilize the dollar market. The collective health of nostro accounts of banks seems good. It is nearly $600 million. The dollar payment capacity of banks has been improving gradually," said Syed Mahbub, who is also the Managing Director at Mutual Trust Bank.

A nostro account is a type of bank account used to hold foreign currency in another bank to settle transactions that hedge exchange rate risk.