STAR BUSINESS REPORT

The Bangladesh Bank (BB) has warned the treasury heads of commercial banks against manipulating the US dollar exchange rate in order to keep the foreign exchange market stable.

Governor Md Mostaqur Rahman issued the warning at a meeting with commercial bank treasury heads at BB headquarters yesterday, after a surge in forward dollar bookings by several banks affected the market and prompted the central bank to act, sources confirmed to The Daily Star.

Treasury heads of three private commercial banks, speaking on condition of anonymity, said that the governor asked them for suggestions on how to stabilise the forex market and exchange rate.

According to them, the governor said the banking regulator does not want to intervene directly in the market and therefore asked banks to behave responsibly.

One of the treasury heads said BB officials raised questions about forward selling and asked banks to rationalise the practice, saying it contributes to volatility in the forex market.

The official also said it would be difficult to stop forward selling as it works like insurance.

Forward selling in the forex market involves entering into an over-the-counter contract to sell a specific amount of one currency for another at a predetermined exchange rate on a fixed future date. It allows businesses and investors to lock in exchange rates and eliminate currency risk.

The treasury heads also told the central bank that there is little scope for banks to manipulate the market, arguing that exchange houses and exporters are more likely to be responsible for volatility.

They also informed the governor that central bank officials had verbally instructed lenders not to increase the US dollar rate, which they described as a form of intervention.