BB move fails to cool down dollar

The US dollar continues to appreciate against Bangladeshi currency taka despite the injection of a vast quantity of greenbacks into the market by the Bangladesh Bank as it endeavours to keep the exchange rate stable.

Yesterday, the inter-bank exchange rate of the US dollar stood at Tk 81.10, up from Tk 81.05 on Sunday and Tk 78.50 a year earlier, according to the central bank.

The BB has sold $126 million to banks in the first 13 days of November and in October it sold $160 million -- the highest yet in 2017. The central bank has sold a total of $440 million to banks from July 1 to November 13. In contrast, it sold $175 million and purchased $1.93 billion during the course of fiscal 2016-17.

“But it is not yielding the desired result as the demand for the US dollar continues to rise,” said a BB official.

The taka has been depreciating against the US dollar since the middle of October mainly due to a mismatch between the demand and supply of the greenback, according to bankers and an economist.

Remittance and exports, the two major sources of foreign currency for Bangladesh, are in the slow lane, while imports have ballooned, they said.

The upward trend of the dollar is bad news for importers, who have to pay Tk 10 lakh extra for a bill of $1 million if the dollar rate goes up by even Tk 1.

Bangladesh's import bills have significantly increased in the first four months of the fiscal year and the existing trend indicates that the payments will balloon further in the months to come. In the first three months of the fiscal year, imports soared 28.38 percent year-on-year to $12.19 billion.

The import of food grains, capital machinery and industrial raw materials continues to rise, the BB official added.

“The current account balance posted a huge deficit in the first quarter of the fiscal year. This reflects the existing foreign currency shortage,” said another BB official.

Between the months of July and September, the current account deficit stood at $1.79 billion, in contrast to $539 million in the surplus a year earlier, according to data from the central bank.

During the period, the trade deficit widened to $3.65 billion from $1.56 billion a year earlier.

Inflation will accelerate if the taka depreciation trend continues, said AB Mirza Azizul Islam, a former caretaker government adviser. The government should take initiatives to increase the export earnings and remittance with a view to halting the depreciating trend of the taka, he added.