Bangladesh Bank sets dollar purchase ceiling, draws criticism

Bangladesh Bank has verbally instructed commercial banks to further reduce the rate at which they purchase US dollars, in a continued effort to manage stability in the foreign exchange market, according to official sources.

Under the latest instruction, commercial banks have been directed to cap the buying rate for remittances from money exchange houses at a maximum of Tk122.85 per US dollar. A senior official of Bangladesh Bank confirmed the directive to The Business Standard.

This represents a slight reduction from the previous ceiling of Tk122.90 per dollar, which was set on 13 April. The adjustment reflects the central bank’s ongoing approach of gradual tightening in order to influence exchange rate movements and maintain market stability.

Policy background

Officials at Bangladesh Bank have stated that exchange rate management is being guided by broader macroeconomic considerations, particularly inflation control. They argue that a higher dollar rate increases import costs, especially for fuel and essential commodities, which in turn may contribute to inflationary pressures within the domestic economy.

The central bank has already introduced a reference exchange rate mechanism, but continues to rely on direct instructions to commercial banks in certain situations to influence market outcomes.

Market concerns and policy debate

The approach has drawn criticism from some bankers and economists, who argue that frequent verbal directives are not consistent with standard market-based exchange rate management. They maintain that exchange rate adjustments should primarily be driven by supply and demand conditions, supported by indirect monetary tools such as auctions, rather than administrative controls.

Former World Bank Dhaka office lead economist World Bank Dr Zahid Hussain noted that discussions are ongoing in relation to reform conditions linked to the International Monetary Fund (International Monetary Fund) loan programme. One of the key expectations under the programme is a transition towards a more flexible and market-responsive exchange rate system.

Market developments

Bangladesh Bank data indicates that remittance inflows remain strong, reaching $28.92 billion in the current fiscal year up to 26 April. Officials have pointed to this steady inflow as a stabilising factor for foreign exchange liquidity.

At the same time, recent weeks have seen fluctuations in the interbank and remittance purchase markets. Some private commercial banks reportedly purchased US dollars at around Tk123 per dollar, influenced in part by anticipated external payment obligations from the Bangladesh Petroleum Corporation and Petrobangla.

Subsequently, rates softened slightly, with private banks reporting remittance purchase prices ranging between Tk122.85 and Tk122.95 per dollar. A senior central bank official stated that despite adequate dollar supply, certain banks had been offering higher rates for remittances, which contributed to temporary upward pressure on the exchange rate.

Forward market activity and intervention

Officials also noted that demand for foreign currency increased following a rise in forward booking activity from mid-March. In response, Bangladesh Bank issued instructions in the first week of April directing banks to suspend forward bookings in an attempt to curb speculative pressure on the market.

Key foreign exchange indicators

Despite differing views on policy direction, Bangladesh Bank officials maintain that stabilising the exchange rate remains essential to controlling import costs and supporting overall price stability in the economy. However, some officials have also acknowledged that repeated verbal interventions may attract attention from international financial partners regarding consistency with exchange rate reform commitments.