The Bangladesh Bank has set a spread of Tk1 between the selling and buying rates of a US dollar for banks to restore stability in the foreign exchange market.
The decision was taken during a Bangladesh Bank meeting with the Bangladesh Bankers Association (BBA) and member banks of the Bangladesh Stockbrokers Association (Bafeda) on Sunday.
Banks can now earn no more than Tk 1 profit per dollar on their weighted average purchase cost, according to meeting sources.
Banks generally buy dollars from two sources: senders and exporters. They buy the greenback at different rates from different sources, so they will calculate the weighted average of the buying costs and charge importers a maximum of Tk 1 per dollar while selling it, according to the decision of the meeting.
Bangladesh Bank has also requested ABB and Bafeda to work together to resume interbank swap operations by October, which have been idle for the past three months.
The dollar interbank exchange rate is now verbally pegged at Tk 95 by the Bangladesh Bank while the rate is above Tk 110 in the open market.
In the curbside market, the spot dollar price rose to Tk 120 last week, but fell to Tk 110-112 yesterday.
Banks are supposed to buy dollars from each other at the interbank rate, but since the difference between the interbank exchange rate and the free market rate is more than 15 Tk, interbank operations have become idle.
Banks now buy dollars directly from shippers and money changers at higher prices.
In Sunday’s meeting with the Bangladesh Bank, bankers urged the central bank to fix the interbank exchange rate according to market demand to make the interbank operation efficient.
If the interbank exchange rate had remained efficient, banks would not have had the opportunity to make unusual profits on dollar sales, observed a senior banker.
Currently, 15 banks hold 80% of the foreign exchange market share, and some well-positioned banks with dollars are making high profits, increasing the price of the dollar in the market.
Bangladesh Bank recently asked six banks, including five private banks and one foreign bank, to withdraw their treasury chiefs for making aggressive profits by selling dollars, which ultimately drove up inflation.
In a recent survey, the central bank found that some banks were making profits of up to Tk 5 per dollar.
Currently, there are no rules regarding the spread between buying and selling dollars. But, the general practice is that banks sell dollars to importers at a price of 0.20 to 0.50 Tk above the buying rate.
However, the high volatility in the foreign exchange market has helped banks earn large profits on foreign exchange transactions.
Although the central bank set the highest profit rate for banks, it did not set the exchange rate.
In May last year, former Bangladesh Bank Governor Fazle Kabir held a meeting with key leaders of the banking community and asked them to implement a uniform exchange rate. But, the banks ultimately did not implement it.
But new Governor Abdur Rouf Talukder, shortly after joining the Bangladesh Bank, led a massive campaign against dollar price manipulation in both the curb and formal market. As part of this initiative, the central bank fired the head of treasury of six banks, revoked the licenses of 5 exchange houses and warned 42 exchange houses.
While briefing reporters shortly after yesterday’s meeting, Bangladesh Bank Spokesperson and Chief Executive, Md Serajul Islam said bankers present at the meeting assured the central bank to take necessary steps to restore stability in the foreign exchange market.
“They agreed that the market would stabilize soon. Furthermore, they were told that export earnings from all exports they deal with should be brought into the country and collected very quickly.”
The central bank also asked banks to take measures to regularize interbank transactions between them.
Asked that exporters are forced to sell dollars at low prices when they have to pay more to open LCs, Sirajul Islam said: “You know that we regularly inspect banks. If we obtain such information, we will certainly take the necessary measures. Additionally, bankers have also been told that the profit they make by selling dollars for imports after buying them against export earnings must be within a limit.