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BB intervenes to make volatile forex market stable

Published : Tuesday, 19 July, 2022 at 12:00 AM  Count : 736

Bangladesh Bank (BB) has withdrawn the interest rate ceiling on non-resident foreign currency deposits in order to increase supply of the US dollar and arrest the ongoing volatility in the foreign exchange market.
The move followed a series of measures taken by the central bank to halt the weakening of the Bangladeshi taka against the US dollar which crossed Tk 100 mark for importers last week.
The forex market was stable as pressure from import payments was low for it being a weekly holiday in major global markets on Sunday. BB earlier had asked banks to set the interest rate in line with the euro currency deposit rates followed by the lenders in the eurozone.
Local banks offered interest rates ranging from 0.25 per cent to 0.80 per cent to depositor as per the BB instruction. From now on, banks are allowed to avoid such ceilings to mobilise deposits from non-resident Bangladeshis and individuals of Bangladeshi origin, including those having dual nationality.
The withdrawal of the interest rate ceiling will also be applicable for foreign companies, firms registered or incorporated abroad, and banks and other financial institutions including institutional investors.
In addition, banks can also manage foreign currency funds from industrial units which are fully owned by foreign nationals and entities in the export processing zones and economic zones.
In another move, the central bank has also taken decision to slash net open position, a limit for banks to hold foreign currencies. Under the new net open position limit, banks will be permitted to hold 15 per cent of foreign currencies of their capital compared to the earlier limit of 20 per cent. Banks usually manage foreign currencies from remitters, exporters and several other sources, but they do not keep all funds under their respective custody.
Lenders have to transfer the excess foreign currencies to the central bank after ensuring their net open position limit. Around $670 million will be injected into the market due to the latest BB decision. The central bank yesterday issued a letter to all banks to this effect.
The country's foreign exchange reserves stood at $39.70 billion on July 14 in contrast to $46.15 billion in December last year. Against this backdrop, the exchange rate of the local currency has declined sharply in recent times.










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