No forward forex contract for over three months: BB

Banks will not be allowed to go for forward sale of foreign exchange for over three months, Bangladesh Bank said in a circular today.

The forward exchange rate is the rate at which a bank enters into a contract with an investor and agrees to exchange one currency at a future date at a fixed rate.

The central bank released today's circular to clarify its previous circular issued on September 24 where it said the forward premium would not exceed SMART plus 5 percent per annum.

The six-month moving average rate of the treasury bill (SMART) is a new system of the central bank, which is applicable for fixing the lending rate.

Many banks and investors understood that they will be allowed to go for forward exchange rate contract for a year instead of three months.

In September, the SMART stood at 7.14 percent and the USD is currently trading at Tk 110.5.

Under three months' contract, if customers collect US dollars through forward purchases, they will have to pay Tk 113.85 per dollar in future whereas the rate could be as high as Tk 123.91 a US dollar under a 12 months' contract.

On September 24, the Bangladesh Bank has decided to determine the rate of foreign exchange, to be delivered in future, widely known as forward contract for the first time.

The development comes amidst the backdrop of the forex crisis, with banks charging different rates to firms for forward purchase of dollars.

Before fixing the rate, banks were imposing different rates for forward selling of US dollars, creating volatility in the foreign exchange market, a senior official of the central bank said.