The local currency, Taka, continued to get stronger against the US dollar thanks to increased remittance and foreign aid flow and a slowdown in import payments.
The local currency appreciated against the greenback by nearly 8% since January 29, 2012 when it soared to Tk84.47, the US dollar’s highest value. The dollar was quoted at Tk77.80 in the inter-bank market on Sunday.
From the very beginning of last year, taka started getting stronger against the greenback. The pressure on the US dollar persisted on the back of a slowdown in import growth, rising remittance and higher foreign aid flow, bankers said.
In 2011, Bangladesh suffered its worst currency devaluation in history, when the taka devalued by around 15%, and consequently, import cost and inflation went high.
Mohammed Haider Ali Miah, Exim Bank managing director and chief executive officer, said higher remittance flow and foreign aid disbursement, rising exports and import fall has made taka stronger against dollar.
“Dollar depreciation might encourage remitters to go for informal channels other than banks to send their money home. But the reduced value of the dollar will hold back the earnings of the exporters,” he said.
He said exchange rate plays an important role in modern economy as an economic tool for promoting domestic and international trade.
“The central bank should take comprehensive exchange rate management policy to maintain export-import balance for accelerating economic growth as well as develop the overall economy,” said Haider Ali.
The local currency appreciated continuously against the US dollar despite the central bank’s intervention in the forex market.
A central bank official said bout of dollar buying spree by the Bangladesh Bank is to encourage remitters by keeping the exchange rate of taka against the US dollar stable. “The amount of foreign currency at banks goes up beyond their limit as the demand for import is low now,” he said.
He also said a constant local currency exchange rate is imperative for keeping the inflow of remittances and export earnings intact.
The central bank has bought $ 3.97bn from the forex market during July-April period of the current fiscal year as part of the central bank's intervention in the market, according to the BB officials.
The dollar purchase is boosting the country’s foreign exchange reserve that crossed $15bn last week for the first time.
The central bank started purchasing the US currency from the banks with the 30-day BB bills, and Islamic bonds, from December last instead of cash money aiming to mop up surplus funds from the market.
“We’re purchasing the US dollars from the banks to protect the interest of the exporters and migrant workers by keeping the exchange rate of the local currency against the greenback stable,” another BB official said.
He also said such intervention would continue in line with the market requirements.
In first nine months of the FY ‘13 the country’s overall import payment came down to $23.98bn, down more than 20% from $26.77bn in the same period of the previous fiscal.
The falling trend of the country’s overall import may continue until the prevailing confrontational political situation improves, according to the bankers.
“Most of the entrepreneurs are now observing the current political situation closely and are following a ‘go-slow’ strategy to avoid any financial risks,” said a senior private banker.
The overall export earnings increased by 10.14% to $19.78bn in the July-April period of the FY ‘13 compared to $19.78bn in the corresponding period of the last fiscal, according to Export Promotion Bureau.
Remittance earnings in the first 10 months (July-April) of the current fiscal year totaled $12.16bn compared $12.85bn during the same period of the last fiscal.
The foreign aid flow to the country in the first 10 months period of the current fiscal was $1.64bn against $1.38bn in the same period of the last year.
Total foreign aid inflow to Bangladesh has picked up as the major donors - World Bank and Japan - have disbursed a big chunk of money in the last couple of months.