Bank purchases additional $83 million through dollar auctions from financial institutions
Bangladesh Bank's Dollar Purchase Auctions Stabilize Exchange Rate
The Bangladesh Bank has been actively intervening in the foreign exchange market since mid-July 2025, purchasing US dollars through auctions to curb excessive depreciation and volatility of the local currency. This strategic move aims to stabilize the exchange rate, shore up foreign exchange reserves, and support the macroeconomic stability of Bangladesh amid global economic pressures and higher import payments.
Reasons for Intervention
The Bangladeshi taka was depreciating sharply against the US dollar, with the dollar's value plummeting by nearly Tk 3 within a week before July 13, 2025. Central bank interventions began to curb volatility and maintain a stable exchange rate in the free-floating regime. There is pressure on foreign reserves due to increased import payments and global economic headwinds, and interventions align with IMF recommendations under a $5.5 billion lending program aiming to stabilize Bangladesh’s macroeconomic situation.
Effects of the Interventions
Bangladesh Bank has purchased close to $798.5 million through six auctions since July 13. These auctions have injected taka (for example, Tk 21.44 billion on 14 August) into commercial banks in exchange for dollars, influencing the supply-demand dynamics. After interventions, the exchange rate stabilized and rebounded, with the interbank selling rate reaching around Tk 122.89 by August 3 after earlier volatility that pushed it lower than Tk 120.1 in mid-July.
Banks have charged up to Tk 122.50 for settling import Letters of Credit (LCs), reflecting market conditions and intervention effects. The foreign exchange market is currently in strong condition considering remittance inflows and export rises alongside these central bank efforts.
Market Analysis
The auctions reveal an unusual step for Bangladesh Bank to directly purchase dollars at a set cut-off rate, signaling active policy to influence the forex market. The interventions reflect a balance between allowing market forces and preventing destabilizing fluctuations in the dollar-taka exchange rate. The strategy has been largely focused on shoring up foreign reserves to withstand external shocks and maintain import capacity.
Analysts note while a stronger taka can ease inflationary pressure, the central bank must carefully manage the speed of currency movements to avoid harming export competitiveness. Ongoing monitoring and readiness to sell or buy dollars based on market conditions indicate a dynamic approach to forex management.
Key Points
- The first dollar auction was held on 13 July, with $171 million purchased at Tk121.50.
- The central bank purchased $83 million worth of dollars today.
- The central bank's market intervention is preventing a sharp decline in the dollar rate.
- A deputy managing director of a leading private bank mentioned that the banking sector is currently experiencing a higher-than-needed inflow of dollars.
- On 7 August, a dollar auction was held, with $45 million purchased at a rate of Tk121.35-121.50, marking a reduction of at least 45 paisa compared to the 23 July rate.
- The monthly import bill has dropped to $4-4.5 billion, as investment-related imports have decreased.
- This is the fifth dollar auction in less than one month, with a total of $622 million purchased so far.
- Another dollar auction followed on 15 July, with $313 million purchased at the same rate.
- The central bank's actions aim to prevent a rapid depreciation of the dollar.
- The banking sector receives an average of $2.5 billion in remittances and exports $4 billion each month, resulting in a monthly inflow of around $6.5 billion.
- A senior official from the central bank's auction committee stated that both a sharp rise and a sharp fall in the dollar rate are unfavourable.
- This excess inflow is causing the dollar rate to fall.
- On 23 July, the central bank purchased $10 million at a higher rate of Tk121.95.
- The official explained that the central bank is taking steps to keep the exchange rate stable to support exporters and remitters.
- The central bank is buying dollars to establish a signal rate for the market.
- The interventions by the Bangladesh Bank in the foreign exchange market, primarily through dollar purchase auctions, can be attributed to the need to stabilize the exchange rate and strengthen the banking and finance industry, given the depreciation of the local currency and pressure on foreign reserves.
- In addition, these auctions aim to support the macroeconomic stability of Bangladesh by shoring up foreign exchange reserves, influencing supply-demand dynamics, and maintaining a balance between market forces and preventing excessive volatility in the dollar-taka exchange rate, which also has implications for the banking and insurance sector by affecting import payments, remittance inflows, and export competitiveness.
