Remittance dollar rate at Tk 123 amid market volatility

Staff Reporter :

Banks in Bangladesh have agreed to cap their purchase rate for remittance dollars at a maximum of Tk 123, following a directive from Bangladesh Bank (BB).

The central bank had earlier set the official dollar rate at Tk 120 under the crawling peg system, instructing selected banks to adhere to the maximum purchase limit.

The dollar market, which had remained relatively stable for four months, turned volatile at the start of December. Within just 13 days, the dollar rate surged from Tk 120 to nearly Tk 128, driven by alleged market manipulation and increased demand ahead of Ramadan, the Islamic holy month.

Market sources have accused certain banks and money exchange houses of hoarding dollars and reselling them at inflated rates, exacerbating the crisis. This speculative activity has not only destabilised the foreign exchange market but also added to the country’s existing inflationary pressures.

In response to the volatility, Bangladesh Bank issued a letter on 19 December to the managing directors of 13 banks, seeking explanations for offering unusually high dollar rates for remittance transactions.

The country’s foreign exchange market has seen significant fluctuations in recent years. The dollar rate was Tk 94.7 in July 2022 and Tk 84.8 in July 2021. The recent surge, however, underscores deeper challenges in managing supply and demand dynamics.

Meanwhile, the International Monetary Fund (IMF) has reiterated its recommendation for a more flexible and market-driven exchange rate system. In light of this, the central bank is considering the introduction of a reference rate for foreign currencies, which would be based on daily bidding rates provided by banks.

The move is expected to enhance transparency and mitigate speculative practices, although concerns remain over the immediate impacts of such reforms on the already volatile market.