The dollar has started gaining in both interbank and open markets after Bangladesh Bank has entered the field for the first time to buy greenbacks through auction.

On Sunday, the central bank bought $171 million from 18 commercial banks at Tk 121.50 per dollar. It followed up with a second round on Tuesday, purchasing $313 million at the same rate.

That brings the total to $484 million.

The dollars bought on the second day will be added to the foreign exchange reserves on Wednesday.

As of Tuesday, banks have been quoting the dollar at Tk 121.50, up from Tk 120.10 the previous day.

On Sunday, the selling price stood at Tk 121.20

Bangladesh Bank said it stepped in to stabilise the market after the rate had been falling steadily for days.

Following the auctions, both banks and the kerb market have reported upward movement in the dollar rate.

Treasury officials at Bangladesh Bank and several commercial banks said lenders purchased remittance dollars on Monday from foreign exchange houses at rates between Tk 120.50 and Tk 120.80.

The day before, the rate had fallen to as low as Tk 119.

The central bank’s spokesperson Arief Hossain Khan said the first auction on Sunday helped push up the dollar rate on Monday. "A falling dollar rate is not good for the economy. Nor is a steep rise.

“So if it moves either way, Bangladesh Bank will act accordingly to keep it stable,” he added.

He explained that the economy’s dynamics hinge on supply and demand. Due to high supply, the dollar rate had fallen.

“That’s why the central bank purchased dollars from the market, causing the rate to rise modestly.”

A senior central bank official said auctions would not be held daily. "We will only intervene when the situation requires it.”

On May 14, Bangladesh Bank announced a move to a market-based exchange rate system as part of reforms under the International Monetary Fund (IMF) loan programme. That change did not lead to a rise in the dollar rate.

The market hovered for a few days, then started trending down over the past one and a half weeks.

Bankers have said steady remittance inflows and improved export earnings have kept the supply of dollars stable.

According to them, imports of capital machinery have declined, which has reduced spending in foreign currency.

Asked why the central bank is offering higher rates than commercial banks expected, a deputy managing director of a private bank said: “The way the dollar rate was falling, the market had panicked.”

“Given our current inflow situation, it could have gone even lower,” he added. “But while importers would benefit from that, exporters and remittance senders would be hurt.

“That could push them towards informal channels like Hundi.”

In addition, disbursements in June from the IMF, Asian Development Bank (ADB), Japan International Cooperation Agency (JICA) and Asian Infrastructure Investment Bank (AIIB) have boosted the central bank’s reserves.

A treasury chief at a private bank noted that the low volume of import Letter of Credit (LC) openings is keeping dollar usage subdued.

“Investment is currently sluggish. When it declines, the need for capital machinery and other imports also falls,” he said.

He added that most of the current imports are for essentials such as oil, fuel, and food grains for the government.

"Outstanding import payments from earlier months have already been settled, leaving little reason to expect a sharp spike in dollar demand now."

A senior official at Bangladesh Bank said they aim to keep the dollar rate between Tk 122.50 and Tk 123.

“If it falls below or rises above that range, the central bank will act accordingly,” he added.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank Ltd, said: “Neither a significant drop nor a sharp rise in the dollar rate is good.

“That’s why the central bank is buying dollars now. It will benefit both remitters and exporters.”