Uncertain business climate raises BB dollar purchase

US dollars worth $19.11 billion bought in four years

AKM Zamir Uddin

An uncertain business environment has pushed the Bangladesh Bank to purchase more US dollars from the local banks, which are facing lack of demand of the US banknotes.
The central bank bought dollars worth $1.54 billion in the first quarter of this financial year taking the total buy to $19.11 billion in four years.
Former interim government adviser AB Mirza Azizul Islam said that investment in the private sector was slow for a long time because of uncertain business environment.
The banking sector will not face excess US banknote if the businesses started full-fledged import considering the country’s business volume, he said.
Central bank officials said that the business sector was yet to fully recover from the uncertain situation and political unrest prevailed before and after the general elections in 2014.
The deficit in infrastructure, particularly shortage of energy, aggravated the uncertain situation, they said.
Mirza Aziz said that the country’s foreign exchange reserve continued to rise because of dollar purchased by the central bank.
The idle foreign exchange reserve, however, will not bring any positive result due to the existing slow growth in import amid dull business, he said.
He said that the country’s economic growth would have been higher if the reserve was used properly.
The central bank bought US dollars worth $555 million in September from commercial banks, $545 million in August and $441 in July, according to the central bank data.
The central bank continued to purchase US dollars in Q1 of the current FY17 after it had bought US dollars worth $4.13 billion in FY16 to keep the exchange rate of taka stable against the US dollar as banks were overflowing with the US banknotes because of lack of demand, a central official told New Age on Thursday.
Another official said that because of central bank intervention in the foreign exchange market, the exchange rate of the USD against the local currency maintained a stable situation in the recent months as it was quoted (buy-sales) at Tk 78.40 during the period.
The official said that the central bank had to go for buying US dollars from the banks as the businesspeople had been maintaining a slow go policy in making new investments.
Imports registered 18.42 per cent negative growth in July, the first month of FY17, compared with the 15.96 per cent growth in the corresponding period of the previous financial year.
The import payment stood at $2.80 billion in July of FY17 compared with that of $3.43 billion in the same period of FY16.
Against the backdrop, the banks are now enjoying abundance of US dollars, the official said.
Former central bank governor Salehuddin Ahmed told New Age on Thursday that the central bank continued to purchase US dollars to keep stable the exchange rate of US banknote against the local currency.
The exchange rate of US dollar against taka would have depreciated significantly if the central bank avoided purchasing the SU banknotes, he said.
The import of industrial raw materials and capital machineries decreased significantly in the recent months causing the banks to face huge amount of excess US dollars, he said.
Salehuddin said that the country’s export earnings recently increased due to the apparel sector which also fuelled the excess US dollars in the banks.
‘Our import growth will increase if the business people diversify their export-oriented industries other than the apparel sector,’ he said.
The central bank purchased US dollars worth $17.57 billion from FY13 to FY16 as the country witnessed dull business during the period that failed the banks use their US dollars in investment, the central banker said.
The central bank data showed that the central bank had purchased US dollars worth $3.76 billion in FY15, $5.15 billion in FY14, $4.53 billion in FY13, $157 million in FY12, $316.50 million in FY11 and $2.16 billion in FY10.
The country’s foreign exchange reserve stood at $31.33 billion on Thursday as the central bank continued to purchase US dollars.
If the current trend of the central bank’s dollar purchase continues, the total purchase might make a record of $6 billion in this financial year, said central bank officials.

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