The Bangladesh Bank has set a gap of Tk1 between the selling and buying rates of one US dollar for banks to restore stability in the foreign exchange market.
The decision was made at a meeting of the Bangladesh Bank with the Association of Bankers Bangladesh (ABB) and the member banks of the Bangladesh Foreign Exchange Dealers' Association (Bafeda) on Sunday.
From now on, banks cannot earn more than Tk1 in profit per dollar on their weighted average buying cost, according to meeting sources.
Banks usually buy dollars from two sources – remitters and exporters. They buy the greenback at different rates from different sources, so they will calculate the weighted average of the buying costs and charge importers a maximum of Tk1 per dollar while selling it, according to the meeting decision.
The Bangladesh Bank also asked the ABB and Bafeda to work together to resume inter-bank exchange operation by this October, which has remained inactive for the last three months.
The inter-bank dollar exchange rate is now set at Tk95 by the Bangladesh Bank verbally while the rate is above Tk110 in the open market.
In the kerb market, the cash dollar price shot up to Tk120 last week, but it came down to between Tk110 and Tk112 yesterday.
Banks are supposed to buy dollars from each other at the inter-bank rate but as the difference between the inter-bank exchange rate and the open market rate is above Tk15, inter-bank operation has become inactive.
Banks are now buying dollars from remitters and foreign exchange houses directly at higher prices.
At Sunday's meeting with the Bangladesh bank, bankers urged the central bank to set the inter-bank exchange rate based on the market demand to make the inter-bank operation effective.
Had the inter-bank exchange rate remained effective, banks would not have got the chance to make unusual profits from dollar sales, observed a senior banker.
Currently, 15 banks are holding 80% share of foreign exchange trading and some banks that are well-positioned with dollars are making high profits, raising the dollar price in the market.
The Bangladesh Bank has recently asked six banks, including five private banks and one foreign bank, to remove their treasury heads for making aggressive profits by selling dollars, which ultimately heated up inflation.
In a recent inquiry, the central bank found that some banks made a profit of up to Tk5 per dollar.
At present, there is no rule about the spread between buying and selling dollars. But, the general practice is that banks sell dollars to importers at Tk0.20 to Tk0.50 higher than the buying rate.
However, high volatility in the forex market has helped banks to make hefty profits from foreign exchange dealings.
Although the central bank has set the highest profit rate for banks, it did not set the exchange rate.
In May last year, former governor of the Bangladesh Bank Fazle Kabir held a meeting with top leaders of the banking community and asked them to implement a uniform exchange rate. But, the banks did not implement it finally.
But, new governor Abdur Rouf Talukder, soon after joining the Bangladesh Bank, conducted a massive drive against dollar price manipulation in both the kerb market and the formal market. As part of that initiative, the central bank removed the treasury head of six banks, cancelled licences of 5 exchange houses, and warned 42 exchange houses.
While briefing journalists soon after yesterday's meeting, Bangladesh Bank Spokesperson and Executive Director Md Serajul Islam said bankers present at the meeting assured the central bank of taking necessary steps to restore stability in the forex market.
"They have agreed that the market will stabilise soon. Besides, they have been told that the export proceeds of all the exports they are dealing with should be brought to the country and be encashed very quickly."
The central bank also instructed banks to take steps to regularise inter-bank transactions among themselves.
When asked about the fact that exporters are forced to sell dollars at low prices while they are having to pay more in opening LCs, Sirajul Islam said, "You are aware of the fact that we are regularly inspecting the banks. If we get any such information, we will definitely take the necessary action. Moreover, the bankers have also been told that the profit they make by selling dollars for imports after buying them against export proceeds must be within a limit."