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Forex reserve drops to $45b - Dailyforextrading.net

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Forex reserve drops to $45b - Dailyforextrading.net

 

The country's foreign exchange reserve has declined to $45.06 billion, mainly due to high import payments and a downward trend of remittances.


The reserve crossed $48 billion on August 24, after which it saw a steep decline, putting pressure on the taka over keeping its exchange rate stable against the US dollar, said Bangladesh Bank officials.

Settlement of letters of credit (LCs), generally known as actual import, stood at $17.04 billion in the first quarter of this fiscal year, up 47.2 per cent year-on-year. The central bank has injected foreign exchange into the market regularly since July to help banks settle their growing import payments.

Some $1.6 billion has been so far injected this fiscal year in order to tackle the depreciation of the taka against the US dollar. The central bank had bought a record $7.93 billion from local banks last fiscal year as a part of its move to rein in the devaluation of the taka.

In addition, Bangladesh paid Asian Clearing Union (ACU) $1.63 billion on November 4 to settle payments for imports, putting an adverse impact on the reserve.

The ACU is an arrangement by which the participants settle payments for intra-regional transactions among the participating central banks on a net multilateral basis.

Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are members of the Tehran-headquartered ACU that was established in December 1974.

In September, the country paid the ACU $1.55 billion, according to data from the central bank. The reserve, however, stood at $44.8 billion just after the payment was settled on November 4. It, however, inched up in the last couple of days.

The downward trend of remittances is another major cause behind the decrease in reserve.Remittance fell 20 per cent year-on-year to $7.05 billion in the first four months of fiscal 2021-22.

According to the balance of payments statement of the BB, the reserve stood at $46.20 billion in September, which is good enough to settle import bills for 6.3 months.

As per the global practice, a country has to maintain a foreign exchange reserve capable of settling import payments of at least three months. Source.

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