Despite the rise in remittance inflow and export earnings, the US dollar keeps rising in cost.
In February, remittances rose by 22.14% compared to the same period last year. Export earnings in the first eight months of the current 2017-18 fiscal (July-February) also increased by 7.38%. Currently the foreign currency reserve in Bangladesh Bank (BB) stands at over $31 billion. Despite these positive factors the price of the dollar against taka (Bangladeshi currency) keeps increasing.
Bangladesh Bank cannot make the currency exchange market normal even after releasing dollars every day. Many question whether the dollar price is being manipulated. Experts think the price is shooting up due to the increase in import expenses.
According to BB data, in less than a year taka’s value against the dollar was reduced to Tk4. In July last year, a dollar sold at Tk 80.66, while in March 12, it was selling at Tk85. In some banks the rate was Tk85.
The central bank has directed all concerned not to charge more than Tk83. Despite that scores of private banks gave Bangladesh Bank wrong information regarding dollar rate.
Bangladesh has been experiencing a volatile situation in the dollar market since June last year. Authorities have failed to contain the price even after releasing dollars due to syndicates, which is why taka’s value is dropping regularly.
Allegations are that a number of banks are behind the destabilization of the currency market. A probe conducted by Bangladesh Bank also found that several banks were selling dollars to clients at a higher price than what they were reporting to the central bank.
The banks charge Tk2 more for selling dollar from business persons than the rate they declare for the settlement of letter of credit, according to Bangladesh Bank. As a result, the import cost has risen and the foreign currency market has also become unstable. The price of the dollar against taka keeps increasing. This factor is beneficial for remittance and export earnings, but import costs are also increasing.
Meanwhile, Bangladesh Bank has issued show cause against 26 banks in two phases on charges of manipulation in the foreign currency exchange market.
The central bank is releasing record number of dollars in the market. So far it has sold $2 billion during the current fiscal. Despite that the dollar is becoming costlier.
Earlier in November, Bangladesh Bank decided to take stern action against the banks over manipulation and destabilizing the market, at a high level meeting chaired by its Governor Fazle Kabir. Following the decision, show cause was issued against 17 banks in the first phase and later 9 more banks faced a similar blow.
Debasish Chakraborty, spokesperson and executive director at Bangladesh Bank, said: “We have taken necessary moves to keep the foreign currency market normal. We have either purchased dollar from the market or sold it out. This is a part of our regular activities.”
He further said: “Bangladesh Bank keeps the market stable through purchase and selling of dollars from the market as a strategy to keep back the value of taka.” Bangladesh Bank always keeps an eye on the market, the BB official added.
Leaders of the Bangladesh Foreign Exchange Dealers’ Association (BAFEDA) held an emergency meeting on November 29 to contain the market. The meeting urged the banks to keep the dollar price lower than Tk83 at import level in order to bring stability in the foreign currency exchange market. The association held another meeting recently since the banks did not keep its request.
During a recent meeting with senior officials of authorized dealer banks, Bangladesh Bank expressed concern over the high rate of the dollar.
According to the central bank, interbank dollar rate was Tk80.66 at the end of July last year. In February, the rate rose to Tk82.90. Currently the rate per dollar is Tk85.25 in the market. Over the last eight months (July-February) of the current fiscal, the value of taka against dollar dropped by 3.77%.
Many suspect that people are transferring money abroad by purchasing dollars anticipating unstable situation in the country centering on the upcoming national elections.
Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS) and chairman of Agrani Bank, said: “Though many tend to remove money abroad ahead of the national elections, dollar price is increasing due to a rise in import expenses.”
He said cost is increasing for the import of equipment being used in a number of ongoing major projects such as Padma Bridge and metro rail. Import of food grain has accelerated due to last year’s flood that hampered production. “But since export earnings have not risen, demand for dollar has increased. That’s why dollar price against taka is increasing gradually.”
According to Bangladesh Bank data, in the first six months of the current fiscal, import expenses have increased by 25.78% compared to the same period of the last fiscal. Between July and December, import of food (rice and wheat) rose by 212%, equipment for setting up industries increased by 35%, fuel by 28% and raw materials for industries rose by over 15%.
In the first six months of the current fiscal, the amount of letter of credit (LC) has exceeded $40 billion and it might cross $60 billion at the end of the fiscal.
As of March 8, Bangladesh Bank’s foreign currency reserves stood at over $31.93 billion. To meet the demand, the central bank has sold more than $2 billion to the banks to date of the current fiscal.
This article was first published on banglatribune.com