U.S. currency gains ground due to BB's purchase of additional $10 million in auction for an elevated exchange rate.
In a strategic move to support a rising dollar rate, the Bangladesh Bank purchased $10 million in a dollar auction on July 13, marking the first time the central bank has engaged in such a transaction in its history. This purchase raised the auction cut-off rate from Tk121.50 to Tk121.95, indicating an intentional effort to prevent further depreciation of the US dollar against the taka and encourage a more balanced foreign exchange market.
The central bank's decision comes after a period of dollar oversupply caused by weak private sector demand and low imports, leading to a significant appreciation of the taka. This was undesirable for exporters and remitters who prefer a relatively weaker taka to maintain competitiveness and remittance value.
Prior to the latest auction, the Bangladesh Bank had purchased a total of $486 million in two previous auctions. However, limited participation from banks in the latest auction reduced the central bank's ability to purchase more dollars despite raising the auction rate.
According to Mohammad Ali, the managing director and CEO of Pubali Bank, the amount of dollars banks sell to the central bank depends on their willingness. He also noted that the market is somewhat tight right now as banks are trying to increase their import LC openings.
The IMF has required a market-based exchange rate, and the central bank is currently organising auctions to buy dollars from the market. As a result, the dollar price in the interbank market has increased slightly over the past few days, with the price crossing Tk122 on Wednesday.
The central bank's purchase of nearly half a billion dollars from the market has tightened banks' liquidity, leading to banks holding onto their dollars rather than selling them to the central bank at a lower price. As a result, the central bank no longer directly intervenes in the market as before, buying dollars at the prevailing market rate according to the conditions of a loan taken from the IMF.
The central bank purchased $173 million at a rate of Tk121.50 through an auction on July 13, and another $313 million from banks at the same rate through another auction on July 15. Yesterday, the Bangladesh Bank purchased another $10 million from commercial banks via auction.
The upward shift in the dollar market in Bangladesh is expected to continue, with the dollar price predicted to increase further on Thursday following the central bank's upward signal. This move by the central bank is aimed at signalling an upward push in the dollar value to stabilise the market after a period of taka strengthening, supporting exporters and remittance inflows, and aligning with the central bank's goal of managing exchange rate volatility and rebuilding reserves.
The central bank's latest auction, which purchased an additional $10 million, indicates a continued effort in the banking-and-insurance sector to stabilize the foreign exchange market, specifically in the finance industry. This intervention is intended to prevent further appreciation of the taka and maintain a relatively weaker taka for exporters and remitters, thus aligning with their preference for a more competitive currency value.
