| Update:
May 22, 2022 12:12:24

The supreme body of concessionary banks has submitted six-point proposals to the central bank to stabilize the current volatility in the country’s foreign exchange (forex) market.

The Bangladesh Stockbrokers Association (BAFEDA) has suggested that the Bangladesh Bank (BB) should provide State-owned Commercial Banks (SoCBs) with foreign exchange support only for the settlement of government import payments for the next three months. .

The exchange rate to be quoted by Authorized Concession Banks (AD) for foreign exchange offices will be Tk 0.10 per US dollar lower than the interbank rate, and necessary arrangements should be made to increase the incentive in cash against employees. remittances at 5.0% compared to the existing 2.5%.

He also proposed to periodically review interbank exchange rates and allow necessary adjustments based on market dynamics.

And, the required foreign currencies should continue to be injected into the market as needed, the supreme body of concession banks said in its proposal submitted to the BB governor on May 19.

Previously, at an emergency meeting of its Executive Committee (EC) on May 18, BAFEDA had taken the decision to

submit a set of proposals to the governor as well as to its member banks.

The EC of BAFEDA expressed the hope that the implementation of the proposals would help to stabilize the market.

A similar letter will also be forwarded to all BAFEDA member banks as soon as possible, a senior trade body official told FE on Saturday.

On liquidity support for SoCBs, he said that the US currency exchange rate rose when SoCBs bought the greenback in the market to settle government import payments.

“It will help stabilize the foreign exchange market if the central bank provides foreign currency support to SoCBs in line with their requirements to settle government import payments for only three months,” the BAFEDA member explained.

The central bank has so far sold $5.50 billion of reserves directly to commercial banks, primarily SoCBs, as liquidity support to settle their import payment obligations in fiscal year 2021-22 in Classes.

He further stated that BAFEDA proposes that all export earnings be negotiated or discounted with designated AD or risk taking banks that process the export documents and receive the export earnings.

This means that AD banks would avoid the cashing in of export proceeds from customers of other banks to help stabilize the foreign exchange market, according to the member.

“Our EC has approved the proposals after reviewing the country’s latest macroeconomic situation as well as the foreign exchange market situation,” he said when answering a question.

BAFEDA’s decision came against the backdrop of a downward trend in the value of the local currency against the US dollar, mainly due to increased foreign exchange outflows following the “strong growth” of payments to import compared to entries in recent months.

The local currency has depreciated by almost 2.0% or 1.70 Tk since January this calendar year, following an increased demand for the greenback to settle import payment obligations.

The dollar was quoted at Tk 87.50 each in the interbank market on Thursday, unchanged from the previous level. It was 85.80 Tk on January 08 of this calendar year.

Market operators, however, say demand for the US currency is still high, mainly due to higher import payments, especially for petroleum products and consumer goods, including food grains.

The greenback was quoted at a high of Tk 87.60 each for the sale of cash-in notes, generally known as BC, on the day – unchanged from the previous level.

In some cases, banks quoted the US dollar between 91 and 95 taka to settle their customers’ import payment obligations instead of 87.70 taka, they added.

They also say that the foreign exchange market still faces a big lag between currency inflows and outflows despite rising export earnings in recent months.

In fact, the country’s import expenditure has increased significantly due to a further rise in commodities, including fuel oil prices in the world market, mainly due to the ongoing war between Russia and Ukraine.

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