With the withdrawal of Bangladesh Bank’s policy on uniform dollar rate on Thursday, the Taka is set to be devalued further.
While economists said this was a good decision, they do think the dollar market needs to be watched closely for market manipulation of the dollar price.
Since the beginning of this year, Bangladesh Bank fixed the value of the Taka against the dollar, and official decisions have changed numerous times.
As a result, officially the value of the Taka was devalued several times. Last Wednesday, Import bills or letters of credit (LC) were opened in banks at Tk92-94 for a dollar.
Asked about the central bank’s latest decision regarding the rate of Taka against the dollar, Zahid Hossain former lead economist, World Bank told Dhaka Tribune: "Considering the free market economy, this decision of Bangladesh Bank seems positive to me.
“But if they think the ongoing crisis will stabilize overnight, they are wrong. For this, Bangladesh Bank has to observe the market over time and they need to keep a close eye on those who may take advantage of the situation.
“I don't think the market will need much time to find the correct rate. Competitive markets usually operate on a trial and error basis. So I think it will not take a long time for the market to stabilize.”
The new decision which is effective from Thursday ends the previously fixed interbank exchange rate of Tk89 against one dollar.
Bangladesh Bank on Thursday decided not to fix the exchange rate of the US dollars and will allow the market to set the price based on demand and supply solely.
That means, from now on remittance and the LCs dollar rate will be settled by the individual bank price or based on the market price and demand and supply of dollars.
The banks have been informed of this decision by the central bank on Thursday.
However, the central bank has also instructed banks not to suddenly raise the value or price of the dollar, as well as instructed them to keep an eye on it to prevent foreign exchange houses' volatile price hikes.
Serajul Islam, the spokesperson for the Bangladesh Bank, said: “The commercial banks have already been informed that they can set the dollar price on their own in line with the market.”
Asked what the reason was behind the decision, Serajul told the Dhaka Tribune: “The decision was taken considering a decrease in remittance inflow through formal channels and the plight of exporters.
“The rate has been left to be fixed according to the market price to give priority to the foreign currency earners amid the volatile condition of the international market."
He also said that a few teams have been assigned to monitor the banks and oversee the foreign currency exchange of the banks.
Asked if lifting the dollar rate cap would affect inflation, which is also on the rise in other parts of the world.
"Inflation can be controlled with some tools other than fixing the dollar price. We are currently monitoring the situation and further action will be taken accordingly," said the BB spokesperson.
Earlier just a week (last Thursday) before the central bank set up a meeting with the leaders of the Association of Bankers Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA) to end the volatile situation of the dollar market.
The central bank then raised the value of the dollar on Sunday evening.
The price was set at Tk89 per US dollar in the interbank market. The central bank has fixed the dollar price at Tk89.15 for sale to importers and Tk88.95 for cash on export bills.
After fixing this price, expatriate income started to decrease. At the same time, exporters were not able to settle the import bills or LCs at regulatory bodies' settled prices. Not only that, in this situation, the crisis may escalate soon to settle the import bill, Dhaka Tribune reported.
Selim RF Hossain, chairman of the Association of Bankers Bangladesh (ABB) and Managing Director of Brac Bank sat down to discuss the overall situation with the concerned persons including the Governor of Bangladesh Bank Fazle Kabir.
The government is trying to save dollars by discouraging the import of luxury goods and cutting spending. Except for urgent projects, caution has been exercised in financing.
Travel abroad for government officials and bankers has also been restricted.