Bangladesh Bank allows banks to offer current dollar rate to exporters

Media reports maintained this adding this move comes nearly two weeks after the central bank introduced the crawling peg exchange rate system, which lets the exchange rate fluctuate within a band and set the mid-rate at Taka 117 to gradually let the market determine the exchange rate.

The new rate is 6.36 per cent higher than the previously fixed Taka 110 per US dollar, which was based on an unofficial directive from the central bank.

Following this relaxation, bankers expect an increase in the inflow of US dollars. Previously, in March last year, the central bank had instructed banks to buy the greenback from exporters based on its value on the due date of proceed realisation rather than the prevailing rate.

Exporters are required to bring export proceeds within four months of shipment. However, some exporters allegedly did not bring their proceeds back because the exchange rate was kept artificially lower than the market rate, creating a discrepancy between the actual realisation of export proceeds and shipment value.

For instance, data from the Export Promotion Bureau (EPB) showed that Bangladesh shipped $43.55 billion worth of goods between July and March of the fiscal 2023-24, but the realised export proceed during this period was only $40.87 billion, indicating a gap of $2.68 billion.

During FY23, the gap between EPB data and central bank data was roughly $12 billion.

“We want the proceeds to come to the country, so we have revoked the previous rule,” said a senior official of Bangladesh Bank speaking to the media even as a top private bank official reportedly noted that prior to this relaxation, exporters did not get the prevailing rate of the greenback, which acted as a penalty.

Now, with the rule revoked, the flow of unrealised exports will likely increase, helping to boost reserves.

However, this change might also raise the cost of purchasing dollars for banks, making the greenback more expensive for importers.

Despite various measures, Bangladesh’s foreign exchange reserves have been declining since September 2021 even as on May 15, the gross international reserves, as per the International Monetary Fund’s calculation, stood at $18.42 billion, covering over three-and-a-half months of import bills.

Bangladesh’s monthly import bill is around $5 billion, meaning the current reserves barely meet the IMF’s minimum benchmark for clearing import payments.

Fibre2Fashion News Desk (DR)