Turnover on interbank forex market on the decline

Turnover on the interbank foreign exchange market of Bangladesh has been falling for the last two years amid a shortage of liquidity, according to a central bank report.

The transaction on the interbank foreign exchange market consists of spot, forward, and swap transactions. It has dipped since 2021-22.

Turnover slumped 48.9 percent year-on-year to $23.6 billion in 2022-23, the central bank said in its Monetary Policy Review 2023-24 published last week.

In July-March of the last fiscal year of 2023-24, turnover declined 8.7 percent to $16.7 billion from $18.3 billion a year ago, reflecting a crunch of liquidity.

Swaps accounted for 94.8 percent of the transactions. It decreased 9.6 percent year-on-year in July-March.

Spot transactions, which account for 4.9 percent of the total turnover, increased by 9.7 percent, said the BB.

The central bank said Bangladesh’s economy experienced the most volatile episodes in the external sector in recent years. The crisis started to emerge with depreciating pressure on the exchange rate resulting from the expanding current account deficits of the balance of payments (BoP) at the beginning of FY22.

To address the challenge, the BB took several steps such as discouraging unnecessary imports, selling foreign currencies from the forex reserves, and allowing the depreciation of the local currency.

The local currency has lost its value by about 35 percent against the US greenback in the past two years.

The BB said it continued selling foreign currencies to address the demand and supply gap and prevent any sudden depreciation of the taka, leading to a reduction in the reserves.

The central bank sold a net $7.62 billion in FY22 and $9.02 billion in FY23. As a result, the reserves, which were $41.83 billion in June 2022, fell to $31.2 billion in June last year. At the end of 2024, it stood at $26.81 billion, BB data showed.

The dollar sales amounted to $9.3 billion in July-April of FY24. Despite the decline, the reserves remained sufficient to cover import bills for 4.6 months, based on the prevailing import trends, the review said.