$350m set to enter forex market

The central bank yesterday beefed up its efforts to increase the supply of US dollars as the foreign exchange market of Bangladesh is facing acute shortages of American greenback amid the yawning gap between imports and exports.    

As part of its measures, the Bangladesh Bank asked banks to encash 50 per cent of the balance held in exporters' retention quota (ERQ) accounts immediately and revised downwards the limit.

Currently, there is $700 million in the ERQ accounts of exporters. The fresh move from the BB will enable the injection of $350 million into the foreign currency market instantly, said a central banker.

In Bangladesh, exporters are allowed to keep a portion of their earnings in the ERQ accounts to settle back-to-back letters of credit liabilities without facing exchange losses.

But the central bank, in a notice, said the retention of foreign currencies in such accounts for a longer period without using them is a cost to exporters since deposits in the taka bear adequate yield.

In view of the situation, it has been decided that banks will encash 50 per cent of the balance of the accounts immediately, said the BB.

It also revised the retention limit out of realised export proceeds, bringing them down from 15 per cent, 60 per cent and 70 per cent to 7.50 per cent, 30 per cent and 35 per cent, respectively.

The new limit will remain valid till December 31 this year.

It came after the foreign exchange reserves of Bangladesh slipped below $40 billion for the first time in nearly two years, owing to higher imports caused by surging commodity prices globally and the appetite in the economy rebounding from the coronavirus pandemic. Reserves stood at $39.70 billion yesterday.

Between July and May, imports increased to $75.40 billion, up 39 per cent year-on-year, whereas exports grew 33 per cent to $44.58 billion during the same period.

Full fiscal year import data has not been published yet.

Exports hit an all-time high of $52.08 billion in the just-concluded fiscal year, giving much-needed breathing space to the country amid ongoing volatility in the foreign exchange regime.

Remittances, the cheapest source of foreign currencies for Bangladesh, however, contracted in 2021-22, the first time in six years, as many remitters opted for the informal channels to send their money. The inflow stood at $21.03 billion.

Fahmida Khatun, executive director at the Centre for Policy Dialogue, welcomed the central bank's move.

"It means that the central bank is recognising the problems and is taking steps to address them."

In May, the noted economist had said the ERQ limit should be reduced to 5-10 per cent of repatriated proceeds for the next six months.

In another initiative yesterday, the BB has allowed, for the first time, the domestic banking units of banks to borrow from their offshore banking operations, to settle the import payments of capital machinery, industrial raw materials and imports made by the government.

Now, offshore banking operations can place funds with their domestic counterparts for six months with a limit not exceeding 25 per cent of the total regulatory capital of a bank.

The relaxation will remain valid till December 31 as well.

Also yesterday, the BB asked banks to report all types of foreign exchange transactions, including those of offshore banking operations, to the different web portals of the central bank on a regular basis.

As part of import monitoring, banks have been advised to submit import information to the Bangladesh Bank Online Import Monitoring System 24 hours prior to opening letters of credit.

The reporting requirement is for transactions involving $5 million and above and excludes the imports carried out by the government.