Bangladesh Bank lifts dollar sale to halt taka slide
After buying a record amount of US dollars last year, Bangladesh Bank has begun selling the American greenback following a decline in remittance and an increase in imports.
The central bank purchased the dollar amounting to $205 million in July. But it has started selling the greenback from this month as the taka is experiencing a depreciating trend after more than a year.
The central bank has sold $223 million so far this month, data from the BB showed.
The intervention in the foreign exchange market was described by analysts as a timely move.
They, however, said remittance would play a crucial role in the foreign exchange regime in the days ahead. If it continues to fall, the central bank will have to intervene on a regular basis.
The inter-bank exchange rate stood at Tk 85.20 per dollar on August 25. On August 2, the rate was Tk 84.80, the same level it had hovered around since July last year.
The BB purchased dollars worth $7.93 billion from local banks last year as part of its move to rein in the devaluation of the local currency.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said that remittance had become the pivotal factor in the foreign exchange market.
"The central bank will have to sell more dollars to tackle the greenback shortage if remittance keeps falling."
Remittance flow to Bangladesh declined to a five-month low of $1.87 billion in July.
The receipts were down 28 per cent year-on-year and 4 per cent from a month ago.
The restrictions on the movement globally eased following the mass rollout of coronavirus vaccination, putting the brakes on the robust flow of the money sent by the migrant workers as the hundi system received a shot in the arm.
The illegal cross-boundary financial transaction had faced a massive disruption during the global lockdown as international travels came to a halt, sending remittance flow to record highs in the developing countries like Bangladesh.
Besides, the commodity prices in the global market have gone up substantially in recent months, resulting in a high import cost for Bangladesh.
The demand for imports has been on the rise. Exports, however, have not grown at the same pace.
Emranul Huq, managing director of Dhaka Bank, said businesses had enjoyed a deferral facility to settle import payments for industrial raw materials.
The central bank allowed banks to settle the payments within 360 days instead of the previous 180 days.
"The extended period has almost come to an end, so banks are feeling the pinch of the dollar shortage," Huq said.
The senior banker expressed a hope that the depreciating trend of the taka would not last long.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said it would take two to three months to understand the direction of the market.
He also said remittance had become the main factor for the depreciation or appreciation of the local currency against the dollar.
Md Arfan Ali, managing director of Bank Asia, said the depreciation of the local currency would not create too much trouble for the economy as the country's foreign exchange reserve had remained strong.
Bangladesh's foreign exchange reserves hit a record high of $48 billion on Tuesday. The reserves went up 23 per cent in the last one year.
The depreciating taka has come as a boon for exporters as it makes the products made by Bangladesh cheaper in foreign markets. However, importers are finding themselves at a disadvantage.
"Against the backdrop, the central bank should emphasise keeping the exchange rate stable," said Kutubuddin Ahmed, chairman of Envoy Group, a garment exporter.