The Forex market will get a $350 million boost
The Bangladesh Bank will increase the supply of US dollars in the local foreign exchange (forex) market, which is facing an acute shortage of the greenback.
As part of its measures, the central bank instructed banks to immediately cash out 50% of the balance held in exporter retention quota (ERQ) accounts and lowered the limit.
Currently, there is $700 million in the exporters’ ERQ accounts.
This new decision will instantly inject $350 million into the foreign exchange market, a central banker has said.
In Bangladesh, exporters are allowed to retain part of their earnings in QRE accounts to settle letter of credit debts without incurring exchange losses.
But the central bank, in a notice, said keeping foreign currencies in such accounts for a longer period without using them is a cost to exporters since taka deposits earn an adequate return.
In view of the situation, it was decided that the banks would immediately collect 50% of the account balance, the central bank said.
It also revised the retention limit on realized export earnings, reducing them from 15%, 60% and 70% to 7.50%, 30% and 35%, respectively.
The new limit will remain valid until December 31 this year.
This came after Bangladesh’s foreign exchange reserves fell below $40 billion for the first time in nearly two years, due to rising imports caused by soaring commodity prices in the world. world and the appetite of the economy rebounding from the coronavirus pandemic.
Reserves stood at $39.70 billion on Thursday.
Between July and May, imports rose to $75.40 billion, up 39% year-on-year, while exports rose 33% to $44.58 billion in during the same period.
Import data for the full year has not yet been released.
Exports hit a record high of $52.08 billion in the just-ended fiscal year, giving the country some much-needed respite amid continued volatility in the exchange rate regime.
Remittances, the cheapest source of foreign exchange for Bangladesh, however, contracted in 2021-22, the first time in six years, as many senders opted for informal channels to send their money.
The inflow amounted to $21.03 billion.
Also on Thursday, the BB instructed banks to regularly report all types of foreign exchange transactions, including those from offshore banking, to the central bank’s various web portals.
As part of import monitoring, banks have been advised to submit import information to Bangladesh Bank’s online import monitoring system 24 hours before opening of letters of credit.
The reporting requirement applies to transactions of $5 million or more and excludes government imports.