As the US dollar continues to rally, the rupee depreciated by 60 paise against the currency in interbank transactions on Monday (May 16th). Banks are benefiting from the widening gap between the dollar and the dollar in the open market.
Although the official rate in the interbank currency market is 8.50, the banks are charging Rs 95-96 per dollar to open LCs (bonds) for imports on the pretext of dollar crisis. However, they are paying the official price during the dollar transaction earned by the exporters.
Banks are trading with the opportunity to differentiate between import and export prices at a time when consumers across the country are suffering from inflation due to rising import prices.
Industry insiders say fixed debt rates have also created an imbalance in pricing. This is prompting banks to engage in unsustainable business in the wake of the dollar crisis – as they have not been able to keep pace with rising credit demand.
An interest rate of 9 per cent on loans is encouraging importers to open more LCs, creating a dollar crisis, said a senior executive at Bangladesh Bank.
In this situation, Bangladesh is reducing the value of money to reduce the gap between the market price and the official price.
In a more recent move, the central bank on Monday devalued the rupee by 70 paise against the dollar, the third sharp depreciation of the local currency in 20 days.
As a result, the exchange rate of the dollar rose to Tk 6.50 in interbank transactions on this day, which was Tk 8.60 on the previous day. This picture has been seen in the data of Bangladesh Bank.
The business sector and consumers are suffering
Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said everyone except banks were being affected by the ongoing dollar crisis.
For example; In order to pay for imports, businesses have to pay more than the central bank-fixed rate against the dollar. But traders are getting the value of their export income at a fixed rate. He also said that expatriates are not getting remittance income at an increased rate against the dollar.
Traders have to open an import LC for around Tk 95 to buy counter dollars. He said the banks are looting profits on the pretext of dollar deficit as Bangladesh Bank has no control over the value of dollar.
The additional cost of opening an import LC will eventually go to consumers, which will further increase inflation, Mohammad Hatem said.
Khorshed Alam, chairman of Little Star Group, told TBS: “We are being forced to open more LCs because of the dollar crisis.”
Kamruzzaman Kamal, director, Pran-RFL Group, said: So, we have to reduce the profit margin. ‘
When contacted, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said that some banks were making money only by capitalizing on the dollar crisis, not all. Lenders offer dollar prices to importers and exporters based on the customer-bank relationship, he noted.
Banks are buying dollars at exorbitant prices from foreign exchange senders. Citing the example of a private bank, he said that even after paying Rs 95 per dollar, they are not getting dollars from remittances.
Another banker, speaking on condition of anonymity, said importers were paying Rs 95 per dollar, which had already affected inflation. So the local currency has been devalued at that rate. It will no longer have an effect on inflation; Rather it will help control unfair business practices and benefit exporters.
A top executive at a private bank, speaking on condition of anonymity, said it was true that some banks were taking advantage of the dollar crisis. Small exporters who do not have the bargaining power are suffering losses.
There must be a norm between selling and buying in the money market to control unfair practices.
However, Bangladesh Bank officials are denying the demand for a dollar import-export rate gap.
Citing an example, an official of Bangladesh Bank said that last week, an exporter settled the export of one million dollars at Rs 93 per dollar. Some small exporters may get lower prices because payments are settled on the basis of bank-customer relationship. However, Bangladesh Bank has not received any complaint from exporters, he said.
Overseas Currency Market Status:
On Monday (May 16) I had to spend Tk 7.50 per dollar in the interbank money market. Even one day ago, one dollar would cost 8 rupees 60 paise. And last May 10 it was 7 rupees 45 paise and on April 26 it was 6 rupees 20 paise. The central bank also raised the interbank euro exchange rate by 63 paise to Tk 91.03.
Banks have sold cash dollars to customers at 5-6 rupees more. Most banks have sold at 90-92 rupees. Dollars have been traded at 92-93 rupees in the open market or carb market outside the bank.
The volatility of commodity prices in the world market was already there, and since the outbreak of the Russia-Ukraine war, the value of imports has risen sharply – which is why the local currency is depreciating against the US dollar.
Sirajul Islam, executive director and spokesperson of Bangladesh Bank, said, “Imports are higher than our export earnings, which is why the dollar is under pressure.” After reviewing the market situation, we have fixed the exchange rate of the dollar at 7.50 rupees.
Exports were on the rise during Eid, with remittances reaching মিল 200 million. In addition, according to the demand of the banks, Bangladesh Bank is providing dollars. So far, the central bank has sold বিল 5 billion against the banks’ demand.
A central bank spokesman said banks were having to buy dollars at higher prices from the open market as they did not get the required amount of dollars.
“We hope it will be adjusted in a few days.”
A senior central bank official said the dollar should appreciate further considering the market. In the near future, the central bank will increase it to 90 rupees.
“But at the rate at which remittances are coming to us, the reserves will go down further. In this case, we need to focus on import substitution and make expatriates more efficient, ”he added.
Foreign exchange reserves under pressure
As demand for the dollar increased due to increased imports, the central bank started selling dollars in line with demand. As of May 12, it had paid ব্যাংক 5.11 billion to banks. In comparison, in the fiscal year 2020-21, the central bank bought ৮ 6 billion from the banking sector.
Meanwhile, in the aftermath of the epidemic, imports and rising commodity prices in the international market have to pay more, which is why the foreign exchange reserves are under pressure.
Bangladesh’s forex reserves, which reached ৮ 46 billion in August last year, have come down to. 41.93 billion as of May 11.
In July-March of the 2021-22 fiscal year, exports grew by about 33 per cent but failed to keep up with the balance of foreign trade, leaving a deficit of ২৫ 25 billion. This is 9 percent more than the previous full fiscal year.
Despite a slight increase in remittances in recent months, the current account of the country’s foreign trade has remained in negative territory as the deficit has crossed 14 billion.
Trader Bangladesh, 18 May, 2022