With celebrations marking the end of Ramadan just days away, money is pouring into Bangladesh from the country’s millions of migrant workers abroad.
That’s good news for families, but a headache for the country’s central bank, which said it would intervene in foreign-exchange markets in an effort to prevent a sharp rise in the value of the local currency, the taka.
Officials at Bangladesh Bank in Dhaka said the bank started buying U.S. dollars on Thursday to blunt the appreciation of the taka during the festival season.
Bangladesh typically sees a surge in inward remittances ahead of Eid al-Fitr, which marks the end of Ramadan in this Muslim-majority nation. The taka was trading at 77.60 to dollar on Thursday, compared to 77.20 a week ago.
Bangladesh Bank officials did not say how much currency the bank might buy during this round of intervention. In the year ended June 30, the bank bought almost $400 million. The Bangladeshi currency has risen steadily against the dollar since late 2012, when it was trading at 84 takas to the dollar.
Remittances from migrant workers – the country’s second-largest source of foreign currency earnings after garment exports – stood at just over $14 billion in the year ended June 30. About $2 billion comes in around the Eid holiday, according to central bank data.
Saidur Rahman, a senior central bank official involved in the intervention, said it was designed to keep the Taka stable to protect the interests of migrant workers and other foreign exchange earners.
A stronger taka means migrant workers’ families get less money after foreign currency conversion. A stronger taka also makes Bangladeshi goods more expensive overseas, hurting exporters, including the country’s $20 billion-a-year garment industry.
The Bangladesh Garment Manufacturers and Exporters Association regularly complains that a stronger taka has left the industry struggling to compete with rivals in countries such as India and Vietnam.
During Eid, most Bangladeshi banks, many of whom provide remittance services and act as agents for money-transfer companies such as Western Union WU +0.51%, face a cash crunch as households spend money on clothes, gifts and home refurbishments. Banks typically borrow from each other, sending the “call money rate” – the short term interest rate – soaring.
Source: Wsj
