DHAKA, JAN 31: The Taka has depreciated by more than 20 per cent against the US dollar in just one year between January 2011 and January 2012, according to Bangladesh Bank (BB) statistics. On January 3 this year, the exchange rate was between Tk. 70.93 and Tk. 70.95 for one US dollar. On January 31 this year, the inter-bank exchange rate for one US dollar was between Tk. 85.55 and Tk. 86.25. On the previous day (January 30), the buy and sell rates offered by banks stood at Tk. 84.30 and Tk. 85.30, respectively.
According to BB statistics, the Bangladeshi sovereign has devalued in the past one year by Tk. 15.30 against one US dollar.
Meanwhile, responding to a question from KM Khalid on Tuesday in parliament (Jatiya Sangsad) on devaluation of the Taka against the dollar, Muhith said it is a complex matter.
“Our exchange rate depends on the values of currencies and inflation,” he said. Whether Bangladesh would release a portion of its reserves to make stable the exchange rate remains a debatable issue. “We’re continuously discussing it as there is no specific ceiling of keeping a reserve. However, the reserve should have a prudent management. If it faces a slump, it can cause harm.”
The minister assured the House that the situation will shortly improve and a balance is expected to be struck in foreign exchange. “The situation will be stable soon,” the minister said, without giving any specific timeline for that.
According to banking sector sources, the local currency is likely to continue to be weak due to huge demand-supply gap. In November last year, dollar was traded between Tk. 76.20 and Tk. 76.90. The Taka took a major hit in December. On December 1, the rate was Tk. 76.98 for one US dollar, while at the end of the month (December 29), it rose to Tk. 81.99.
“Accurate depreciation is above 20 per cent,” said a top official of a private bank.
He said that his bank on Tuesday bought US dollars because of emergency requirement at the rate of Tk. 86.25.
However, an advisor of the central bank did not agree with the rate, but admitted that it might be within Tk. 85.55.
The advisor, who wished not to be named, said the central bank does not officially intervene to fix up the exchange rate as it happens to be floating and is usually determined by the market, based on supply and demand.
According to him, the closing inter-bank exchange rate of the previous day is basically the opening rate of the following day. He said the central bank, however, encourages banks not to behave disorderly as huge depreciation has already hit the country.
He also admitted that there is a pressure on exchange rate as the demand for import is high. “We advised banks not to accept L/Cs (Letters of Credit) for import of unnecessary goods, taking into consideration the current economic situation,” he noted.
He said the central bank further asked banks not to make unusual benefit out of creating excessive volatility in foreign currency prices. He also said the central bank keeps close tab on every development in currency prices, and would take stern action against anyone taking advantage of the prevailing price volatility. “However, the situation would improve soon as the remittance inflow became high in the past couple of months pacifying the import pressure,” he added.
Meanwhile, the central bank governor, during announcement of the latest monetary policy stance, revealed that the Taka has depreciated against the US dollar by 15 per cent. The listed reasons include lower than expected remittance inflow, slow growth in exports and FDI (Foreign Direct Investment) and low mobilisation of foreign aid.
Commenting on the central bank’s stance, a top official of a private bank said indirect influence by the regulator (BB) was one of the main causes for devaluation of Taka against US dollar abnormally.
The official said the central bank had verbally warned banks about the abnormal rise in exchange rate against the dollar. “On receiving the information that the regulator had asked banks to show caution in case of exchange rate of dollars, as it created panic among banks and importers, which impacted the exchange rate,” said the official.
The central banks also asked BAFEDA (Bangladesh Foreign Exchange Dealers Association) to impose ceiling (Tk83.00 buying and Tk. 83.50 selling) on exchange rate for one US dollar.
“But, in reality, BAFEDA has no regulatory empowerment to execute the ceiling that resulted in determination of individual exchange rate determination, based on demand and supply,” he added. “The rate could have been more rational if the central bank had not intervened for fixing the rate by BAFEDA,” he said.
He said day-to-day increase in exchange rate for dollars has two implications — some importers become cautious on initiating L/Cs and on the other hand, some importers become desperate to hear ‘Yes’ from bank in accepting L/Cs, irrespective of the rate.
Meanwhile, economists pointed out that devaluation of the Taka has hit the country’s macro-economy by effecting a rise in inflation, import and production costs. Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS), told The Independent that the government should think of immediate intervention to check such consequences.
“Two avenues may come in handy to tackle the prevailing situation. The government may increase flow of foreign aid into the country by initiating implementation of foreign aided projects ensuring transparency and accountability, and it could curtail the public expenditure,” he suggested.