The ACU is an arrangement through which participating countries settle import payments for intra-regional transactions. COURTESY
The country settled import payments worth $1.99 billion with the ACU last week, plummeting the reserves to $39.80 billion on Tuesday for the first time in nearly two years. The reserves stood at $46.15 billion in December last year
Foreign exchange reserves in Bangladesh have slipped below $40 billion after the Bangladesh Bank cleared the import payments to the Asian Clearing Union (ACU).
The country settled import payments worth $1.99 billion with the ACU last week, plummeting the reserves to $39.80 billion on Tuesday for the first time in nearly two years. The reserves stood at $46.15 billion in December last year.
The ACU is an arrangement through which participating countries settle import payments for intra-regional transactions.
Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are members of the Tehran-headquartered ACU. The central banks of the countries have to make the payments every two months.
The reserves have been under-stressed in recent months as exports and remittance flow failed to keep pace with blistering import bills.
Between July and May last fiscal year, imports increased to $75.40 billion, up 39 per cent year-on-year when exports grew 33 per cent to $44.58 billion.
In addition, remittances contracted in 2021-22, the first time in six years, as many remitters opted for the informal channels to send their money. The inflow stood at $21.03 billion.
The central bank is now injecting US dollars on a regular basis into the money market, helping banks settle import bills.
It supplied a record $7.62 billion in the last fiscal year of 2021-22 and $209 million in the current fiscal year.
Still, the BB has failed to stop the depreciation of the exchange rate of the local currency. The taka traded at Tk 93.45 to a dollar on Thursday compared to Tk 84.80 a year ago.
Call money rate highest in more than 6 years
Due to the growing demand for cash on Thursday – the last working day before Eid-ul-Azha, the interbank call money rate rose to 5.85 per cent, which was the highest in the last six and half years.
Previously, the highest call money rate – 5.48 per cent – since 2016 was recorded on Wednesday, when interbank transactions in the call money market was Tk8,687 crore.
Between June 13 and 20 this year, the weighted average rate in the call money market, where banks borrow from each other on an overnight basis, hovered between 5.01 per cent and 5.03 per cent, according to an analysis of central bank data.
Industry insiders said growing liquidity crisis apart, the two consecutive rises in repurchase agreement (repo) rate also contributed to a big jump in the call money rate.
On 30 June, the central bank raised its key interest rate by 50 basis points to 5.50 per cent – a record hike in recent history – as part of its efforts to keep inflation in check.
A month ago on 29 May, it increased the rate to 5 per cent from 4.75 per cent.
The cash shortage has now exacerbated as banks continue to purchase dollars from the central bank amid a lower deposit growth.
The banks purchased $7.62 billion from the central bank in exchange for more than Tk30,000 crore in FY22.
Meanwhile, the government borrowing from the banks in the last fiscal was more than double compared to the previous fiscal.
In FY21, the government borrowing from the banking sector was Tk26,078 crore, which was Tk64,755 crore in FY22 – Tk38,677 crore more than the previous year, according to the provisional data of the central bank.
Banks purchased $7.62 billion from the central bank in the just-concluded FY22, according to the monetary policy statement.