BB Cash Issuance Reaches Tk 2 lakh 83 thousand 700 crores

Bangladesh is shifting towards a free-floating currency system by redirecting banks to obtain foreign exchange 

from the interbank market instead of receiving direct dollar sales from the central bank. This policy change aims to address the country's rapidly depleting forex reserves. Previously, the Bangladesh Bank (BB) sold $12.80 billion and bought $3.38 billion in the fiscal year 2023-2024, but has now reduced sales significantly, with $678 million sold in July and $170 million in August, while buying only $115 million.

The Bangladesh Bank has announced a series of significant measures to address challenges in the banking sector. The policy rate is set to increase to 10% within the next 1-2 months to control inflation, as stated by the Association of Bankers Bangladesh (ABB) Chairman.

The recent unrest and subsequent anarchy following the ousting of the Hasina government have sharply disrupted supply chains, intensifying inflationary pressures on an already strained economy.  In July, food inflation surged to 14%, the highest in 13 years, while overall inflation increased by 1.94 basis points to 11.77% from the previous month. In response, the newly appointed Governor of BB raised policy rates by 50 basis points to 9%, making bank borrowing more expensive.

A recent Bangladesh Bank (BB) report suggests that Bangladesh should focus on expanding export markets before fully embracing local-currency settlements in external trade. The study, "Trading in Local Currencies: Problems and Prospects for the SAARC Countries," led by BB's Executive Director (Research), notes that despite the initiation of trade settlements in Indian rupees (INR) in mid-2023, this approach has not yet gained significant traction.

In June, Bangladesh's financial account surplus surged by nearly $2.5 billion, ending fiscal year 2023-24 with a $4.55 billion surplus, largely due to inflows of bilateral and multilateral loans. Despite this increase, the surplus was lower than the previous year's $7 billion. The trade deficit decreased by 18%, and the current account deficit narrowed by 44%, thanks to reduced imports and a $2 billion rise in remittances. 

Bangladesh Bank has raised the policy rate by 50 basis points to 9% in an effort to control inflation, which has surged to 11.66% in July. This increase is expected to make borrowing costlier, potentially reducing demand and curbing inflation. This marks the second rate hike since May, following IMF recommendations.