Dollar climbs as import costs rise, reserves stall

Rising expenditure on fuel and other imports, coupled with relatively sluggish growth in dollar inflows, has put fresh pressure on the country's foreign exchange market. As a result, the US dollar is becoming more expensive, while foreign exchange reserves have stalled after a period of growth.

On Wednesday, the interbank exchange rate rose to Tk 124.35 per US dollar. Meanwhile, several banks reportedly purchased remittances at rates of up to Tk 124.70 per dollar over the past three days.

In an effort to increase dollar supply in the market, Bangladesh Bank planned to hold an auction to sell US$100 million on Tuesday. However, after receiving bids from banks, the central bank cancelled the auction at the last moment without providing a clear explanation to the participating banks.

Bankers said demand for US dollars had increased due to higher international prices of liquefied natural gas (LNG) and rising fuel import costs. Meanwhile, dollar inflows have remained insufficient, as export earnings, remittances and foreign loan disbursements have failed to grow at the expected pace.

According to Bangladesh Bank data, expatriate Bangladeshis sent home US$11.46 billion in remittances between July and October of the current fiscal year, up 13 per cent from the same period of the previous fiscal year.

During the same period, export earnings grew by 6 per cent to US$17.04 billion.

However, the rise in import payments presents a more concerning picture. During July and August, the first two months of the current fiscal year, import payments increased by 12.10 per cent year-on-year to US$12.20 billion.

Petroleum import payments nearly doubled to US$2.49 billion during the period.

Meanwhile, pressure on the foreign exchange market has been accompanied by a slowdown in reserve growth. On Wednesday, the country's gross foreign exchange reserves stood at US$36.43 billion.

Under the International Monetary Fund's (IMF) Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6) methodology, reserves stood at US$31.56 billion.

Analysts said effective measures were needed to increase foreign currency inflows, control import expenditure and boost export earnings to stabilise the dollar market.

Otherwise, volatility in the country's foreign exchange market could intensify further.