The price of the forward and future dollar in the market has also increased. The forward dollar is now being sold at rates ranging from 110.64 taka to 113.85 taka at various tenures. Some banks are even selling it for 114 taka. Banks, especially those involved in commercial imports and foreign loan repayments, are holding onto forward dollars. Even for importing goods, industrial raw materials, and machinery, they are relying heavily on forward dollars. This is increasing the cost of importing goods, leading to higher prices in the market. Other products are also being affected by these price increases, putting pressure on inflation.
Even at a maximum price of 110 taka, banks are not able to obtain forward dollars for importers. Even internal banks do not have access to them. As a result, they are forced to buy forward dollars at a higher rate, which increases the cost of imported goods. Most of these forward dollars are used to pay import bills. As a result, the cost of imported goods is increasing, and this is affecting the prices of other products as well, leading to inflation.
Banks have been setting higher rates for forward and future dollars since August 3. On that day, the highest selling rate for forward dollars in imports was 110.14 taka. Now, the rate is 110.64 taka. For two-month forward dollars, the rate was 110.78 taka in August and is now 111.28 taka. For three-month forward dollars, the rate was 111.34 taka in August and is now 111.93 taka. The rates have increased by 50 paise in each case. Even for one-year forward dollars, they are being sold at 114 taka. The new increase in the exchange rate for dollars became effective from August. Since then, the rate has been rising towards the maximum rate of 110 taka.
Despite controlling the primary dollar market through the Central Bank via the Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers, Bangladesh (ABB), the Central Bank does not control the forward market or the cash dollar rate in the market. Banks determine this based on supply and demand. This is why banks can sell forward dollars in the forward market for up to 4 taka more than the official rate.
Banks usually keep forward dollars for the purpose of opening LCs and repaying foreign loans based on a fixed tenure. Now, the demand for forward dollars has increased, leading to higher rates. However, there is a shortage of supply. Purchasing forward dollars at higher rates also increases the cost of LCs. Therefore, forward dollars in the market are currently in high demand, leading to higher prices.
Banks typically buy forward dollars for opening LCs and repaying foreign loans. They keep forward dollars for a fixed tenure based on the Central Bank’s instructions. Afterward, they can sell the remaining dollars in the interbank foreign exchange market. Here, they can only sell at rates 4 taka higher than the official rate. However, all banks are currently buying dollars at the maximum rate. As a result, they are not selling forward dollars in the market. Some banks are keeping extra dollars in their possession due to the expectation that they might get a 50-paise to 1 taka profit for holding them for a few months. This is why some banks are holding onto dollars.
According to reports from the Central Bank, the monthly foreign exchange earnings have been averaging between 470 to 480 crores of dollars. Most of this is being held by importers. On the contrary, for every 70 to 80 percent of imports, banks are charging extra to cover their back-to-back LC costs. The remaining 20 to 30 percent is being used in the imports of other companies within the group. Now, within the same bank, you can use forward dollars for imports. However, you cannot do so in other banks, as the Central Bank has restricted interbank transactions with forward dollars. As a result, importers are not getting dollars for commercial imports. Remittances bring in around 160 to 170 crores of dollars each month. Most of this is being used for the government’s essential imports such as fuel, gas, fertilizers, and essential goods. Therefore, private importers are not getting dollars. If they need to import any essential goods, they have to pre-book dollars. These bookings can have a tenure of up to six months or even a year. Pre-booking forward dollars requires opening an LC within that period. This has made the forward dollar market quite complex. The price of forward dollars is also expected to increase in the future.
Despite the efforts of the Central Bank to control the primary market for dollars through BAFEDA and ABB, they do not control the market and cash dollar rates in the forward market. Banks determine these rates based on supply and demand. This is why banks are currently selling forward dollars in the forward market for up to 4 taka more than the official rate.
