Dollar buying capped at Tk122.85, economists raise doubts

Bangladesh Bank has issued verbal instructions to commercial banks to further reduce the maximum rate at which they may purchase US dollars from money exchange houses, in a continued effort to manage stability in the foreign exchange market, according to official sources.

Under the latest directive, banks have been instructed to cap the remittance buying rate at Tk122.85 per US dollar. A senior official of Bangladesh Bank confirmed the instruction to The Business Standard.

The new ceiling marks a marginal reduction from the earlier limit of Tk122.90 per dollar, which was set on 13 April. The adjustment reflects the central bank’s ongoing incremental approach to influencing exchange rate behaviour and maintaining order in the foreign currency market.

Policy rationale

Central bank officials have stated that the measure is intended to support macroeconomic stability, particularly in relation to inflation management. They argue that a higher US dollar rate increases import costs, especially for fuel and essential goods, which can contribute to broader price pressures in the domestic economy.

Bangladesh Bank has already introduced a reference exchange rate mechanism as part of its policy framework. However, it continues to use direct operational instructions to commercial banks in specific instances to influence short-term market conditions.

Diverging views on intervention

The practice has drawn criticism from some economists and bankers, who argue that frequent verbal directives are not aligned with standard market-based exchange rate systems. They maintain that exchange rates should primarily be determined by supply and demand conditions, supported by indirect policy tools such as market operations, rather than administrative instructions.

Former World Bank Dhaka office lead economist World Bank Dr Zahid Hussain noted that exchange rate flexibility is a key element of ongoing reform discussions linked to the International Monetary Fund (International Monetary Fund) programme. He said that one of the programme’s core expectations is a gradual shift towards a more market-determined exchange rate regime.

Market conditions and recent trends

Bangladesh continues to record strong remittance inflows, which have helped support foreign exchange liquidity. According to Bangladesh Bank data, remittances reached $28.92 billion in the current fiscal year up to 26 April.

Despite this, short-term volatility has been observed in the foreign exchange market. Some private commercial banks reportedly purchased US dollars at around Tk123 per dollar in recent weeks. This was partly influenced by anticipated external payment requirements from the Bangladesh Petroleum Corporation and Petrobangla.

Subsequent trading showed some easing, with remittance purchase rates settling between Tk122.85 and Tk122.95 per dollar across private banks. A senior central bank official stated that although overall dollar supply remains adequate, certain banks had offered higher rates for remittances, contributing to temporary upward pressure on the exchange rate.

Forward market activity

Officials also pointed to increased demand for foreign currency following a rise in forward booking activity from mid-March. In response, Bangladesh Bank instructed commercial banks in early April to suspend forward bookings in order to reduce speculative pressure on the market.

Summary of key indicators

Officials have maintained that exchange rate stability remains important for containing import costs and supporting overall economic price stability. At the same time, some within the central bank acknowledge that repeated verbal intervention could attract scrutiny in relation to international reform commitments, particularly those associated with IMF-supported programmes.