The central bank is set to enhance the foreign-exchange flow by nearly $1.0 billion as part of regulatory measures to manage the ongoing volatility in the market, officials say.
Around $365 million will be credited to banks' own accounts from exporters' retention quota (ERQ) accounts as the Bangladesh Bank (BB) instructs authorised dealer (AD) banks to encash 50 per cent of their total foreign currency held in relevant ERQ accounts immediately.
Another $569 million will be added to the market as inflow following the BB's decision to cut 5.0 percentage points of the net open position (NOP) limit of commercial banks to 15 per cent from the current 20 per cent.
"We've decided to slash the NOP limit aiming to bring back stability in the country's foreign-exchange market through enhancing inflow of the greenback," a BB senior told the FE on Thursday.
The BB would relay the decision to all the scheduled banks in writing on Sunday, he added.
As per the decision, NOP has been decreased by nearly 25 per cent to $1.71 billion from $2.27 billion.
The limit has been revised based on 15 per cent of the total regulatory capital instead of 20 per cent earlier of the banks as on 31 March 2022, say BB officials.
The banks are now empowered to retain less foreign exchange to comply with the NOP rules for holding forex properly, they explain.
NOP means the net sum of all foreign-currency assets and liabilities of a financial institution, inclusive of its spot and forward transactions, and off-balance sheet items in that foreign currency.
"It will help enhance inflow of US dollar in the inter-bank foreign exchange (forex) market," states another BB official.
However, the BB issued a notification on Thursday and asked AD banks to immediately encash 50 per cent of their total forex held in relevant ERQ accounts.
Exporters may retain a portion of the repatriated export proceeds in ERQ accounts in line with the existing foreign exchange regulations.
The rates of ERQ depending on local value addition are 15 per cent and 60 per cent while it is 70 per cent for IT sector.
The retention limit has also been cut by 50 per cent to 7.50 per cent, 30 per cent and 35 per cent respectively from 15 per cent, 60 per cent and 70 per cent earlier.
This revision will be effective until 31 December 2022, according to the notification.
The BB also relaxes regulations allowing banks to place funds to their Domestic Banking Units (DBUs) from Offshore Banking Operations (OBOs) for six months with a limit not exceeding 25 per cent of total regulatory capital of the banks concerned to facilitate external transactions.
The funds will be used only for settling import payment of capital machinery, industrial raw materials and imports by the government, according to another notification issued the same day.
This relaxation will remain valid for placement of funds to DBUs until December 31, it adds.
"We've taken three types of regulatory measures on Thursday aiming to improve the foreign-currency liquidity situation on the market," a top central banker tells the FE.
Such measures will help activate the inter-bank forex market that almost nonfunctional in recent months mainly due to lower inflow of the greenback, he adds.
The BB measures come against the backdrop of a recent rising trend in the current-account deficit alongside depreciating mode of taka against dollar mainly due to higher import-payment pressure on the economy.
Meanwhile, the central bank continues to provide its foreign-currency support to scheduled banks in a bigger way for managing this volatility.
It sold $135 million directly to five banks on Thursday to help them meet the growing demand for the greenback.
On Wednesday, the central bank sold $97 million to three banks on the same ground.
The BB has so far injected $575 million from its reserves into commercial banks as liquidity support for settling import-payment obligations in FY23.
Bangladesh's forex reserve came down to $39.70 billion on Thursday from $39.77 billion of the previous working day following higher sales of dollar from the reserve.
In FY22, the central bank sold $7.62 billion from the reserves to the banks for the same purposes.
BB officials hint that the regulator may continue with such liquidity support to the banks in line with market requirements.
Md Nurul Amin, former chairman of the Bangladesh Foreign Exchange Dealers' Association, welcomes the latest BB moves, saying that it will help manage volatility in the forex market.
He urges policy-makers to form a high-powered committee to monitor the overall market situation considering the latest reform measures that have already been taken.
"The committee will assess the possible impact of the ongoing Russia-Ukraine war on our economy," notes the senior banker.
Talking to the FE, Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank Limited, says: "Definitely, it will be able to bring a positive impact on the market in the near future."
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