Foreign exchange market volatile again due to Ramadan import rush and delayed LCs

After a five-month pause, dollar rates have started to rise again, prompting the central bank to question the chief executives of 13 banks about the greenback’s newfound volatility.

In their response to Bangladesh Bank (BB) yesterday, several bankers said that the foreign exchange market was currently under pressure due to the opening of letters of credit (LC) for Ramadan essentials and settlement of letters of credit. overdue credit.

They also cited the central bank’s dollar-buying spree to protect dwindling foreign exchange reserves and market manipulation by some exchange houses as factors contributing to the dollar’s recent rise.

The BB accused the 13 banks of offering unusually high rates for collecting funds from exchange houses compared to the official rate, according to Bangladesh Bank executive director and spokesperson Husne Ara Shikha.

The 13 banks are: BRAC Bank, Islami Bank Bangladesh, Shahjalal Islami Bank, Jamuna Bank, Trust Bank, Rupali Bank, Eastern Bank, Janata Bank, United Commercial Bank, NCC Bank, Mercantile Bank, City Bank and Al Arafah Islami Bank.

A senior central bank official said the foreign exchange market had become unstable this month due to some banks offering dollar rates higher than the official rate.

Currently, a sliding parity exchange rate system is in place, allowing banks to freely buy and sell US dollars within an average band of Tk117.

While banks are allowed to quote a maximum of Tk 120 per dollar for collection of funds, some banks would quote up to Tk 128 per dollar.

Central bank officials have warned that banks could face consequences if their explanations are found unsatisfactory.

“We submitted our explanation to the central bank on Sunday and will follow the BB’s instructions regarding purchases of US dollars from exchange houses,” said Mirza Elias Uddin Ahmed, managing director and CEO of Jamuna Bank.

He said there is pressure on the foreign exchange market as letter of credit (LC) openings for commodities have increased in the run-up to Ramadan.

“We are not able to collect enough foreign exchange at the current official rate,” he said, adding that in some cases, exchange houses are responsible for the high rate of the US dollar.

Ahmed, however, was optimistic that the foreign exchange market would soon stabilize.

A senior BRAC bank official told The Daily Star that his bank had sent the explanation to the central bank yesterday.

He attributed the instability in the foreign exchange market to lack of communication and coordination.

He pointed out that the central bank’s recent instructions to banks to clear overdue letter of credit payments had prompted some banks to aggressively offer high rates to collect foreign exchange.

Officials from City Bank’s treasury department confirmed they had sent their explanations to the central bank.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said the central bank’s recent directive to banks to clear overdue letter of credit payments by the end of December had prompted banks to step up efforts to collect foreign currency this month.

Rahman also said that several major LCs had opened this month.

Asking to remain anonymous, a senior Mercantile Bank official told the Daily Star that three major factors contributed to volatility in the foreign exchange market.

These are the lifting by the central bank of restrictions on the opening of letters of credit for banks affected by the crisis, the suspension of sales of US dollars by the BB to banks from the reserve and the seasonal pressure on the foreign exchange market between October and December.

According to the BB, the exchange rate of the taka and the US dollar is expected to become more flexible in line with the recommendations of the International Monetary Fund (IMF).

A BB official said the banking regulator plans to publish a benchmark rate for foreign currencies based on daily bid rates provided by banks.

The banking regulator aims to align the benchmark rate with the rates at which banks buy and sell US dollars, the official added.