The dollar was selling for Tk126 apiece in Bangladesh on Thursday. The market has become volatile again, despite record remittance and high export earnings.
They also warned that if this continued, rising import costs would hit inflation harder.
Insiders also said that the crawling peg system was not working as banks were running the system differently, while a new crawling peg may be introduced soon.
Following the fall of the Awami League government, the market stabilized as the interim government took several measures related to the dollar rate.
At the start of December, some banks started buying the dollar at Tk129-130 earlier this month.
In November last year, the dollar hit Tk127 in the market.
However, on December 22, the central bank sought explanations from two state-owned and 11 private banks for buying dollars at a higher price from foreign exchange houses.
Later, the banks decided not to pay more than Tk123 for a dollar.
However, the central bank still uses the official rate of Tk120 on its website, even though the average market rate was between Tk125 and Tk126.
The buying rate for remitting in banks was Tk123.40-124 on Thursday.
On the other hand, in the kerb market, or open market, the dollar price was Tk126.20 to Tk130 depending on demand.
Zahid Hussain, former lead economist, World Bank Dhaka office, told Dhaka Tribune: “I think there are two main reasons behind the sudden spike in the dollar rate.
“One, the banks were instructed to pay off their previous dues. They were asked to pay off the deferred LCs and aggregate LCs like electricity and fertilizers on time. For this, they had to collect dollars from the market. That means there has been a demand spike for dollars in the market.”
However, this economist believes there was a good intention behind this directive of Bangladesh Bank.
“Due to the recent Moody’s downgrade, there has been a big drop in reputation. The third-party banks are either charging extra for LC settlements with our country’s banks, or they just do not want to do transactions at all. Therefore, there was a need to rebuild this reputation by settling deferred LCs.”
This white paper committee member highlighted the indecisiveness of Bangladesh Bank as the second reason for the dollar spike.
“When the IMF came to discuss in early December, they said that they were unhappy with the current fixed crawling peg exchange rate. It will have to be changed to a market flow exchange rate. After that, it was announced that Bangladesh Bank would go to the new crawling peg system. As a result, speculation was rife in the foreign exchange market.
“Due to their (BB) indecisiveness, a kind of speculation has been created in the market. Actually, in the money market, you have to be quick and decisive. You have to work first and then talk,” he added.
New exchange rate
Asked what the new exchange rate policy or new crawling peg could be, Zahid Hussain said: “What I have come to know is that the peg will change every day under the new system. For example, on a day if the average dollar selling price of all banks is Tk123, the mid-value of the dollar on the next day will be Tk123. Banks will sell by adding 1-2% band value to this. The mid-value will be determined by averaging the dollar sales from the previous day. In this, the peg will change every day.”
Bangladesh Bank introduced a fixed crawling peg exchange rate system on May 8, as per the terms of the IMF’s $4.7 billion loan.
That day, the dollar’s intermediate rate was increased by Tk7 at a hike to Tk117 as a mid-value.
At that time, it was verbally said that the dollar could be bought and sold by adding Tk1 from Tk117.
At that time, the dollar’s selling price was Tk118-119.
After the change of government, the dollar was allowed this band value by 2.5%, or Tk120. For a few months, it was Tk120-122.
In the meantime, the IMF team arrived in Dhaka on December 5. They raised questions after not seeing the dollar’s price fluctuate.
They advised leaving the exchange rate completely to the market. Since then, the dollar market has become volatile, bankers and market insiders said.
Remittance
Due to the escalation of dollar prices, in the first 21 days of December 2024, expatriates have sent nearly $2.07 billion in remittances to their families and beneficiaries.
Though the remittance income crossed the $2 billion mark in all the months since the interim government has taken charge, this was the fewest days to cross the mark.
Amid this high inflow of remittance income, the central bank has been buying dollars from the commercial banks, which is increasing the forex reserve also.
According to Bangladesh Bank, on December 23 the reserve stood at $24.98 billion.
As per BPM6, the volume of reserve was $20.16 billion.
Dhaka Tribune
