Bangladesh Bank identifies reasons behind increased dollar demand

Dhaka, 30 Dec  – Bangladesh Bank (BB) has identified several factors contributing to the rising demand for US dollars, leading to volatility in the foreign exchange market.

In a statement released on Monday, Husneara Shikha, Executive Director and Spokesperson of the central bank, mentioned that December traditionally witnesses heightened dollar demand due to year-end obligations.

“The repayment deadlines for various foreign loans and deferred payments typically fall in this month, contributing to increased pressure on the market,” she explained.

Besides, she said, the central bank’s decision to cease dollar sales in the interbank market to meet International Monetary Fund (IMF) targets has further tightened supply.

The central bank also acknowledged the impact of Bangladesh’s downgraded credit rating, which has strained correspondent banking relationships with foreign institutions.

This, in turn, has impeded the opening of Letters of Credit (LCs), delayed the maturity of deferred payments, and disrupted the flow of offshore banking loans.

A recent BB directive requiring foreign debt repayments by December has added further pressure to the already strained market.

Shikha also pointed to inefficiencies in remittance collection, citing monopolistic practices and the involvement of intermediaries as destabilising factors. “The role of aggregators in remittance collection has significantly affected exchange rate stability,” she said.

Commercial banks have been struggling with mismatches between dollar inflows and outflows, exacerbating market volatility.

The central bank assured stakeholders that it is closely monitoring the situation and working to stabilise the market while ensuring compliance with its broader economic objectives.