Remittance Dollar Rate Dips Amidst Market Shifts
The cost of converting remittances into local currency is decreasing due to several economic factors. This shift indicates a changing landscape for foreign exchange, impacting both banks and the flow of funds.
Falling Exchange Rates
The amount banks pay to acquire remittance dollars has gone down. Treasury officials at various banks say the rate dropped by Tk0.5-0.7. This change contrasts with expectations following the central bank’s move to a market-based exchange rate.
Initially, there was anticipation of an increase in the dollar rate after the central bank’s policy change on May 14th. However, major banks’ treasury heads agreed to cap the rate at Tk123. This action caused a swift rate decline within a day of the announcement.
Market Dynamics in Play
The demand for remittance dollars in the interbank market has decreased, influenced by a rise in export earnings and restrained import growth. This dynamic is driving the remittance rate downwards, aligning with current market trends.
“But demand isn’t what it used to be,”
—Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank
Syed Mahbubur Rahman of Mutual Trust Bank stated that the dollar market should operate based on supply and demand. He noted that new investments have stalled, reducing imports of capital machinery and intermediate goods. Banks have also largely cleared overdue import payments.
The Bangladesh Bank’s data indicates that exports between July and May in fiscal year 2025 reached $44.95 billion, a 10.36% increase. Imports via LCs reached $58.94 billion in the July-April period, growing only 2.98% year-on-year. LC settlements were $58.82 billion, up 6.08%.
Remittances and Private Sector Debt
Remittance inflows from July to June 21st totaled $29.5 billion, marking a 26.7% increase. However, analysts suggest that remittances could have been even higher, if banks had not been closed for approximately 20 days during Eid.
Despite a $454 million rise in short-term foreign debt in the private sector between February and April, overall dollar demand is soft. According to the Bangladesh Bank, gross foreign exchange reserves stood at $20.77 billion on June 4th. According to the World Bank, remittances to low- and middle-income countries reached $669 billion in 2023 (World Bank).
Future Outlook
Policy officials at banks suggest that a sharp rise in dollar demand is unlikely in the coming months. Most investors are delaying new projects until after the national election. Therefore, import demand related to investment will remain low.
In contrast, export and remittance growth is predicted to continue. This will likely increase dollar supply, which may keep the exchange rate under pressure.
