Taka's depreciation on the horizon, StanChart says

Standard Chartered Bank has predicted a modest depreciation of the domestic taka against the US dollar this year and the next, as it remains overvalued in comparison to peers.

“Depreciation of taka is desirable for the economy,” said Divya Devesh, SCB's strategist for the Asian foreign exchange market, at a media briefing held at the capital's Westin Hotel recently.

Most of the Asian currencies have depreciated against the dollar in recent years, but taka remains exceptionally strong, which is not sustainable, he said.

Subsequently, the British bank predicted that a dollar will trade at Tk 80 this year and Tk 83 in 2018.

Yesterday, a dollar traded at Tk 79.3, according to the Bangladesh Bank.

A team from SCB's global research division led by its head Dave Murray visited Bangladesh last week.

The team touched on the implications of the new US administration's protectionist leanings and the rise in nationalist parties in some European countries on the emerging markets.

Most of the policy changes in the US would be made to prop up the US dollar, Murray said, adding that there would be expansionary policies that would lead to higher interest rates and a stronger dollar.

“You are likely to see a tighter monetary environment developing now and this has some headwinds for emerging markets,” he added.

But Bangladesh's apparel exports to the US will not be affected by any new policy taken, said Thomas Costerg, a senior economist at SCB.

New American President Donald Trump's policy will not affect growth before next year, he said, adding that the US will raise some tariffs in selected sectors, such as manufacturing, electronics, auto and parts.

“There may be some misunderstandings between the US and its trade partners.”

Costerg tipped the global economy to grow 1.9 percent this year, up from 1.6 percent it had managed last year.

The markets will see uncertainties, in response to which risk-aversion measures will be taken, Murray said.

But, there are massive opportunities for those economies willing to take a step forward to take the challenge of more trade and economic activities, he added.

Over at South Asia, the macroeconomic fundamentals are good riding on the low oil prices, said Saurav Anand, a research analyst at SCB. Though the Bangladesh economy has been growing at more than 6 percent, it has potential to grow at an even higher rate.

But for that, bottlenecks related to infrastructure, power and the ease of doing business need to be addressed, he said, adding that private sector investments need to pick up as well.