Dollar Climbs Past Tk 124.70 as Central Bank Auction Draws No Takers

The Bangladeshi currency came under fresh pressure this week as the US dollar continued to appreciate in the open market and Bangladesh Bank's attempt to inject dollars from its reserves failed to attract any buyers at the price it was prepared to accept. Commercial banks reported purchasing the greenback from remittance houses at rates as high as Tk 124.70, while letters of credit were settled at similar or marginally higher levels. The gradual climb has now taken the dollar roughly Tk 1.90 higher than the rates prevailing in mid-August, reversing part of the relative stability seen earlier in the year.

Bangladesh Bank had scheduled an auction to sell $100 million from the country's foreign-exchange reserves in an effort to ease the shortage. Bids submitted by banks, however, clustered above the range the central bank regarded as acceptable, so the auction closed without any sale. Officials have been trying to keep the rate from breaching the Tk 125 level, yet successive interventions have only moderated the pace of the rise rather than stopping it. Earlier limited sales from reserves produced only temporary relief; once the dollars were absorbed, demand quickly reasserted itself and the rate moved higher again the following day.

Several factors are converging to keep demand elevated. Large scheduled obligations of state-owned entities, especially the Bangladesh Petroleum Corporation and Petrobangla, require substantial foreign currency for fuel and energy imports. Payments for fuel in the first two months of the current fiscal year have been roughly double those recorded in the same period a year earlier, driven both by higher global prices and by the need to maintain domestic supplies.

At the same time, remittance inflows have remained subdued, staying below the $3 billion monthly threshold for consecutive months and falling short of the volumes that previously helped balance the market. Export earnings have also been less buoyant than expected, reducing the supply of dollars available to meet the rising payment needs.

Bankers describe a market that is chronically short of dollars on many trading days. Some institutions have been forced to pay premiums to remittance houses or turn to the parallel market to meet client requirements for imports and other obligations. The central bank's decision not to sell at the higher market-clearing rates has preserved reserves in the short term, but it has also allowed the open-market rate to keep edging upward. A senior commercial banker noted that without a steadier supply of dollars or a stronger recovery in remittances, the pressure is likely to continue at least until the middle of November, when the heaviest fuel-related payment obligations are expected to taper off.

Despite a large trade deficit, the current account still recorded a modest surplus in the opening months of the fiscal year, supported by earlier remittance strength. Officials caution, however, that any further decline in expatriate inflows could quickly erode that buffer. Higher import costs for energy and other essentials are already feeding into the domestic economy, and a weaker taka adds another layer of cost pressure for manufacturers and traders that depend on imported raw materials and intermediate goods.

For the moment the exchange rate remains within a relatively narrow band compared with the sharper swings witnessed during earlier periods of stress. Nevertheless, the unsuccessful auction and the continued rise in the rate paid by banks indicate that the market is testing the central bank's willingness to defend any particular level. How Bangladesh Bank balances the competing objectives of conserving reserves, smoothing day-to-day volatility, and avoiding a sharper depreciation will determine the path of the taka in the weeks ahead.

Market participants will be watching both the next intervention decisions and the incoming remittance and export figures for clearer signals of whether the current pressure is temporary or the start of a more sustained adjustment.