Bangladesh Bank buys dollars at auction for first time

A senior bank official says the central bank bought at Tk 121.50, though most banks offered Tk 120

For the first time, Bangladesh Bank has bought dollars from commercial banks in an auction.

The central bank bought $171 million at the auction at a rate of Tk 121.50. These dollars will be transferred from commercial banks to the central bank's account on Monday.

While Bangladesh Bank has previously purchased dollars from commercial banks at fixed rates at various times, this is the first time the collection is being done through an auction.

Bangladesh Bank spokesperson and Executive Director Arief Hossain Khan told bdnews24.com, “The price has decreased due to an increased supply of dollars in banks.

“The auction was held on Sunday. Several banks participated in it.”

He said, “If the dollar rate drops, it creates difficulties for expatriates and exporters. To prevent this, the central bank has decided to purchase dollars from banks.”

According to Bangladesh Bank data, the average dollar rate on Jul 13 was Tk 120.60, and on Jul 10, it was Tk 121.85.

Despite the central bank’s May 14 announcement that mentioned a market-based dollar exchange rate would be adopted to meet International Monetary Fund (IMF) conditions, the dollar price did not rise.

After easing the conditions, the dollar has been showing a slight downward trend for the past one and a half weeks.

Bankers claim the dollar supply in the market is normal due to increased export income along with remittances.

They also said fewer dollars are being spent due to reduced imports of capital equipment.

Bangladesh Bank officials have said the dollar market is stable despite a few months of fluctuations in remittances and an increase in export income.

The central bank also received a large amount of dollars in June due to the release of funds from the IMF, Asian Development Bank (ADB), Japan International Cooperation Agency (JICA) and Asian Infrastructure Investment Bank (AIIB).

Regarding this, a senior Bangladesh Bank official said: “The rate offered for buying dollars is higher than the bank’s demands.

“Though most banks set the price around Tk 120 to sell dollars in the auction, the central bank has bought dollars at Tk 121.50.”

In response to a question about why the central bank is offering a higher price than the commercial banks’ expectations, the deputy managing director of a private bank said: “The market panicked because the dollar price was falling. Since our dollar flow is good, a situation was created where this rate would fall further.

“If the dollar price fell, importers would benefit, but exporters and expatriates who send remittances would be affected.

“There would also be a threat of transactions increasing via Hundi [an unauthorised channel for remittance transactions]. Due to this, the central bank bought dollars at a higher price and signalled the market to go up.”