Remittance dollar hits record high of Tk127 – signaling economic headwinds

Treasury officials at several private banks said such an unusual rise in the dollar rate would put significant pressure on the economy, ultimately fueling already high inflation.

A deputy general manager of a private bank explains: “Aggregators often commit to a fixed rate in the morning but then back out citing higher offers from other banks. This disrupts our payment schedules. »

A dollar market aggregator is a financial intermediary that connects buyers and sellers of dollars. They often pool liquidity from multiple sources to offer competitive exchange rates to their clients. Well-known examples include Western Union, Xoom, Remitly, MoneyGram and CurrencyFair.

An unscheduled meeting involving a central bank deputy governor and policymakers from 11 banks discussed these issues, but no concrete resolutions were adopted.

Syed Mahbubur Rahman, Managing Director, Mutual Trust Bank, said, “Demand for dollars in banks has increased marginally, making a moderate hike in rates natural. However, December’s sharp increase is not consistent with market demand and could affect efforts to control inflation. “.

The chief executives of several major private banks have identified the main reasons behind the recent rise in dollar remittance rates.

First, they point to a slight increase in dollar demand in the market. From September to January, import payment delays contribute to increased demand, with December seeing the most pressure. When demand for dollars exceeds supply, the exchange rate rises.
Secondly, aggregator exchange houses have been reported to be the main contributors to the excessive price rise over the past two weeks.

These aggregators buy dollars from smaller exchange houses at slightly lower rates at the start of the day, consolidating remittances into the hands of 7-8 large players.

These aggregators then sell dollars to banks through an auction-like process, in which banks willing to offer the highest rates get the dollars. This practice inflates the dollar rate and allows aggregators to maximize their profits.

Third, since the interim government took office, the central bank has significantly reduced its sales of dollars from its reserves and started purchasing small quantities on the market.

Fourth, the IMF pressures the central bank to adopt a crawling parity system to determine the dollar rate. This has led banks and clients to speculate on the possibility that the central bank will completely liberalize the dollar market under the crawling peg system, which could lead to further increases in the price of the dollar.

Fifth, state banks have become new competitors in the dollar remittance market to meet their payment arrears, which have accumulated significantly. To settle these payments, they are actively buying dollars, a trend not seen in the last two years. Currently, these banks account for 50% of dollar purchases in the remittance market.

Increase in remittances

Between July and November of the current fiscal year, remittances through formal channels increased by 26.44 percent from $8.81 billion to $11.14 billion year-on-year. According to central bank data, remittances to the banking sector increased by $2.34 billion, fully absorbed by state-owned banks.

The five state-owned banks – Agrani, Janata, Rupali, Sonali and Krishi – received $3.42 billion in remittances during this period, an increase of 217% from the $1.08 billion received during the same period last year. Rupali Bank recorded the highest growth at 1343%, with others also surpassing 100% growth.

Private banks, however, are in trouble due to the unethical practices of aggregator exchange houses, bankers say.

Dollar reaches Tk127.50 in external market

The soaring exchange rate in the banking channel has led to a severe liquidity shortage in the public market. Exchange houses in Motijheel, Paltan, Baitul Mukarram and Gulshan saw many buyers returning empty-handed due to high prices.

The dollar sold as high as Tk 127.50 in the external market yesterday. While many exchange houses offered a maximum purchase rate of Tk127, dollars were largely unavailable.

Abbas, a customer at a money exchange house in Gulshan, expressed his frustration: “A week ago, dollars were available at Tk 124. Now they are at Tk 127, and I have not been able to buy any despite visiting several exchange houses.”

The rise also had an impact on other currencies. Nayan, who recently returned from China, said, “I bought Chinese yuan for Tk 17 ten days ago, but today I sold it for Tk 17.50. »

Ali Akbar of Sugandha Exchange House highlighted the unusual demand: “Last week, I sold dollars for Tk124. Today, a few buyers needed it urgently and paid Tk 127.50 for it. Even sellers like us could not find dollars at Tk 127. »

To explain the shortage, Akbar noted that while remittances through banking channels have increased, inflows of cash dollars into the open market have not increased. He added: “With reduced travel to India, fewer dollars are entering the country through the Indian border, which affects the liquidity supply. »

Murad, another seller, pointed out the disparity between market rates and official rates: “The Bangladesh Money Changers Association fixed the dollar rate at Tk 120, but we couldn’t even buy at 126, 50 Tk. How can we sell at the official rate? “

The banking market crisis highlights the broader challenges of stabilizing dollar rates amid growing pressures in banking and remittance markets.