Currency

Global markets
Local foreign exchange market
While the world currency market is still recuperating from the shock of US subprime crisis, soaring oil prices and geo-political turmoil, 2007 was rather a low key year for the local foreign exchange market. There was no major gyration in the local forex market with rates being range bound for most of the year. The USD hovered mostly between BDT 69.00 and 69.50, while reaching the peak of BDT 70.93 in January.
USD/BDT started the year with a bang -- marching momentarily upward to subside from February onwards. Price of dollar showed a modicum of movement in first half of 2007, supported by a marked increase in wage earners' remittance. Fall in commodity imports (foodgrain, edible oil) in H1 07 also abetted the stable USD/BDT.
Stability of USD-BDT was challenged in the second half of 2007 when the economy had to battle with two major floods. In October the demand for dollar was fuelled by higher import of foodgrains and petroleum, which reached a record peak of $99.29 a barrel in the international market. The Central Bank facilitated the market liquidity with injection of ample funds. Since then, dollar has been extremely steady with the year end inflows of foreign aid on account of cyclone Sidr.
A positive balance of payment coupled with record wage-earners remittances also helped keep the USD/BDT market stable. While both import and export registered a growth of around 15-16%, remittance registered a record growth of 25% to $ 6 Bio. The remittance flow helped to increase the FX reserve above USD 5 Bio for the first time.
The steady dollar taka throughout 2007 could not fully insulate importers of capital machinery as dollar plunged against most major currencies in the international market. Dollar hit record lows against euro and multi-year lows against other currencies -- driven by overall slowdown in US economy coupled with weakness in the housing sector that turned into what is now known as the US Subprime crisis. Rate cut by US Federal Reserve has hurt the dollar further as investors shifted to higher yielding currencies. Euro had climbed steadily this year, gaining more than Taka 10 in just 3 months mostly on back of euro-dollar appreciation. Overall euro had appreciated around 16% against BDT through the course of the year. Rising euro has had telling effect on businesses involved in capital expenditures, as most of the machineries are imported from Europe.
Steady rate of USD has also meant very little activity in the forward market. Importers were content with steady rates and ample supply of dollar. On the cross currency front some importers showed interest in hedging their cross-currency exposures. Derivative products i.e. cross currency options gained popularity as FX risk-hedging solutions amongst the importers. Besides FX risks, corporate bodies also showed increased awareness to hedge their commodity price risk through commodity derivatives.
Money market
The money market experienced unique calmness throughout 2007. Unlike previous years, the call money market was quite stable and apart from a few intermittent spikes, rates hovered around 6.50%.
The gaining of momentum in secondary bond trading was a major development in 2007. Activation of the Primary Dealership process by Bangladesh Bank was a significant step in facilitating secondary bond trading. The commercial banks also actively participated to increase the depth and sophistication of the local market.
Other major developments in 2007 include a more transparent monetary policy from Bangladesh Bank, introduction of two new long term bonds of 15 and 20 year tenors, participation of an increasing number of commercial banks in the secondary bond market and increased depth in Repo/Reverse Repo transactions in the money market.
Up to the first half of December 07, yield on 28 days Treasury Bills experienced a slight decline, while that on 91, 182 and 364 days Treasury bills increased marginally. Yield on Treasury Bills of 28 days decreased by 1 bp while that on 91, 182 and 364 days increased by 4 bps, 6 bps, and 2 bps respectively. Treasury Bonds, on the other hand, experienced a general decline in yields. 5, 10, 15 and 20 years bonds declined by 23 bps, 76 bps, 111 bps, and 246 bps respectively up to the first half of December 07. The changes in the long and short-term yields resulted in flattening of the yield curve in 2007.
Statutory Liquidity Ratio (SLR) of 13% and Cash Reserve Ratio (CRR) of 5% were kept unchanged by Bangladesh Bank. The bank rate was maintained at 5% while the Central Bank's Reverse Repo rate (rate at which banks can invest their surplus liquidity with the central bank) remained unchanged at 6.50% in the year.
Steps taken by Central bank in 2006 regarding introduction of bond calendar and marking to market (MTM) of securities held for trading (HFT) started to yield benefits in 2007. We see a great potential for a vibrant secondary bond market in 2008.
- Standard Chartered Bank