BB sells USD ignoring market rates
The Bangladesh Bank yesterday sold $40 million to banks at Tk 96 each, a rate that contradicts its own efforts aimed at embracing a floating exchange rate since it is far lower than the market rate.
A senior BB official, on the condition of anonymity, argued that the central bank will need some time to follow the market-based rate while selling the greenback to banks.
"We will adjust the rate gradually in order to make the floating exchange rate fully effective," he said.
Two economists urged the central bank to adopt the market-driven rate in the quickest possible time to restore stability in the foreign exchange market, which has been facing volatility since May amid dollar shortages caused by escalated imports.
The exchange rate of the greenback, however, was unchanged on the inter-bank platform on Tuesday and yesterday. The highest rate quoted by banks was Tk 106.90 yesterday.
Some banks sold dollars at Tk 109 to Tk 110 to importers as they did on Tuesday.
The weighted average rate stood at Tk 103.35 per USD yesterday, up from Tk 103.30 a day earlier.
The weighted average rate is the average of the rates at which banks purchase dollars from exporters and remittances from foreign exchange houses.
A managing director of a bank said that no one should consider the existing weighted average rate to judge the ongoing direction of the foreign exchange market.
He explained that banks were now setting the average rate based on the rates of the last five working days.
"The weighted average rate may drop to some degree within next week," he said.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, suggested the central bank set the exchange rate in line with the rate quoted by the market.
"If the central bank does not do so, the foreign exchange market will not get back its stability," he said.
According to the former economist of the International Monetary Fund, a majority of dollars supplied by the central bank is largely used by state-run enterprises, such as for clearing import bills for petroleum products.
"This means the central bank is now subsidising the government to import commodities by selling the dollar rate at a lower rate," he said.
"Multiple rates will not bring any good to the economy. The Bangladesh Bank is following one rate for importers in the private sector while another rate for state-run enterprises."
Importers have to count up to Tk 110 to purchase a dollar from banks.
Selling dollars at a lower rate will not help protect the foreign exchange reserves, which stand at less than $38 billion compared to more than $46 billion one year ago, either.
Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, thinks the government should provide subsidies to import essential commodities.
"If the central bank raises the rate from the current level, the government will have to spend more money to buy essential commodities from international sources," he said.
Under such a situation, he thinks, the government should provide budgetary support to keep the prices of commodities stable such that ordinary people don't face further inflationary pressure.
The central bank has supplied greenbacks to the tune of $2.90 billion this fiscal year after injecting a record $7.62 billion in the last fiscal year, which ended in June.
Comments