Bangladesh’s foreign exchange market is showing signs of strain as the US dollar continues to rise despite strong reserves, ample liquidity and record remittance inflows, prompting heightened scrutiny by Bangladesh Bank.
On Tuesday, the dollar climbed to Tk122.85 in interbank trading, extending an upward trend that began after tensions escalated in the Middle East on February 28. Over the past month alone, the exchange rate has risen by 55 paisa, despite what officials describe as stable underlying conditions.
Officials say the movement appears increasingly disconnected from underlying economic fundamentals and may reflect expectation-driven behaviour rather than genuine demand pressure. Some have also raised concerns about attempts to influence market sentiment by fuelling expectations of a sharp depreciation.
The central bank has intensified market monitoring and may begin enforcement action from Thursday if irregularities are detected. Officials told TIMES that inspection teams could be sent to selected private banks as concerns grow over what they describe as an “artificial shortage” narrative.
The concern stems from a widening gap between market pricing and key indicators. As of April 7, foreign exchange reserves stood at $34.48 billion in gross terms and $29.86 billion under the BPM6 methodology.
At the same time, banks’ net open positions rose sharply to $1.08 billion by March 30, up from $602.71 million a month earlier. Total foreign exchange holdings increased to $3.39 billion from $2.30 billion over the same period, pointing to a significant build-up of dollar liquidity in the banking system.
That liquidity has been reinforced by strong inflows. Between April 1 and 6 alone, Bangladesh received $660 million in remittances, extending a record trend largely driven by earnings from Gulf countries.
Against this backdrop, the central bank has formally pushed back against concerns of currency pressure.
In response to a query from TIMES of Bangladesh, acting spokesperson Mohammad Shahriar Siddiqui issued a written statement saying the market remains stable and balanced, with no immediate pressure for depreciation of the taka.
“Market confidence and discipline are intact. However, some media reports are projecting negative expectations of dollar depreciation, which is not appropriate,” he said.
Despite these indicators, the exchange rate has edged upwards in recent weeks, breaking from a relatively stable range of Tk122.30–Tk122.31 observed throughout February and early March.
Market participants say expectations are now shaping behaviour. Speculation that the dollar could rise to Tk130 has gained traction, influencing decisions across banks and businesses.
Importers have begun advancing settlements, exporters are delaying repatriation of proceeds and banks are holding onto dollar positions. Analysts say this has created a self-reinforcing cycle that tightens supply in the interbank market.
Central bank officials say such behaviour is now under close observation. “Even if liquidity is comfortable, the market can behave as if there is a shortage,” one official told this news outlet.
Evidence from banks appears to support this assessment. A treasury head at a state-owned commercial bank said there was no settlement pressure and liquidity remained sufficient.
Another state-owned commercial bank reported unusually high dollar holdings, with its net open position reaching around $20 million, well above its typical level. “Even without fresh purchases, we can manage for at least a month,” the official said, questioning the rise in rates in the absence of demand.
Private bankers have largely declined to comment publicly. However, several, speaking on condition of anonymity, alleged that six to eight private banks may be influencing market signals through selective quoting and position management, though no formal findings have been disclosed.
Officials say recent foreign exchange transactions are now under review, with a focus on whether pricing patterns indicate coordinated positioning. They caution that even without explicit collusion, such behaviour can distort price discovery in a relatively shallow interbank market.
So far, the central bank has refrained from direct intervention. After purchasing $25 million on March 2 at a cut-off rate of Tk122.30, it has not made further purchases despite accumulating $5.49 billion in the 2025–26 fiscal year.
Officials say the pause was intended to avoid tightening liquidity amid global uncertainty linked to Middle East tensions.
However, internal discussions this week, led by Governor Md Mostaqur Rahman, included a proposal to inject up to $200 million into the market to signal reserve strength and discourage hoarding. The proposal was deferred, with policymakers opting to observe market developments for a few more days.
A senior official said monitoring had been stepped up and that inspection teams could be deployed if conditions fail to stabilise.
Economists say the recent movement reflects a shift in behaviour rather than fundamentals.
Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said uncertainty over future exchange rate movements is prompting banks to hold dollars as a precaution.
“When there is a perception that the rate may rise, even those holding dollars hesitate to release them,” he told TIMES, adding that banks are also increasing hedging against future liabilities and global risks.
Analysts say this behaviour has reduced interbank trading volumes and amplified price movements despite adequate supply.
They warn that expectation-driven dynamics, if left unchecked, could create artificial volatility even under otherwise stable economic conditions.
Such distortions could disrupt import planning, delay export proceeds and complicate monetary management at a time when the economy is already exposed to external shocks, including rising energy costs and geopolitical tensions.
Officials say the central bank is aware of institutions that may be contributing to the distortion but has yet to take enforcement action.
“The data does not support a weaker currency,” one official said to TIMES. “If the market continues to behave otherwise, we will have to respond.”
