The exchange rate for remittance dollars seems to be on the decline. This is largely attributed to a decrease in demand from banks, which is linked to better liquidity, fewer overdue import payments, and steady growth in exports.
Several bank treasury officials noted that banks purchased about TK0.5-0.7 on Thursday, suggesting an influx of remittances. Initially, many expected the dollar rate to rise after the central bank introduced market-based exchange rates back on May 14th. However, the finance leader of a major bank has casually agreed to cap the rate at TK123, and within a day of the central bank’s announcement, the rate dropped significantly.
Demand for remittance dollars is dwindling in the interbank market, thanks to rising export receipts and dampened import growth. Consequently, remittance rates are being influenced by market dynamics.
Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank, commented that the dollar market operates on supply and demand. After the new system was rolled out, there was a common concern about potential rate hikes. “But demand isn’t what it used to be,” he remarked.
He pointed out that new investments have stagnated, leading to decreased imports of capital machinery and intermediate goods. Most expired import payments have been cleared by banks, while strong export flows have bolstered liquidity alongside reduced overcharges and unearned declines.
According to Bangladesh Bank data, exports totaled $449.5 billion from July to May, while imports through LCS reached $58.94 billion between July and April, reflecting a modest 2.98% year-on-year rise. Additionally, LC settlements hit $58.82 billion, marking a 6.08% increase.
Remittances from July to June 21 stood at $29.5 billion, which shows a 26.7% increase compared to $232.9 billion last year. Analysts believe remittances could have been even higher if the banks hadn’t been closed for nearly 20 days during EID.
Private Sector Lowers Dollar Borrowing
Despite a $454 million rise in private sector short-term foreign debt from February to April, the overall demand for dollars remains subdued due to favorable rates, stable reserves, and low volatility.
Policymakers from various banks indicated that sharp increases in dollar demand are unlikely in the near future. Most investors appear to be holding off on new projects until after upcoming national elections. Therefore, import demand tied to investments remains low.
On the flip side, growth in exports and remittances is expected to persist, likely resulting in a further increase in dollar supply and pressure on exchange rates.
The head of Forex House noted, “In the past, banks would reach out to us for dollars. Now, we call them, and many people are hesitant to buy. Just a month ago, some state-owned banks that used to actively purchase stopped collecting remittances.”
He also mentioned that the rate is consistently declining by TK0.5–0.1 each day.
As per the Bank of Bangladesh, the total foreign exchange reserve was noted to be $20.77 billion on June 4. This marks the fifth consecutive year that reserves have surpassed the $20 billion mark, adding to the currency market’s stability.
