Taka devalued again due to declining reserves, high import costs

Economists say although exports have picked up significantly in recent months, it has failed to offset the imbalance created in the forex market by the low remittance and high imports

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Rising import costs, declining remittances in the first six months of FY22, and the latest payment to the Asian Clearing Union (ACU) as a bill against exports in the last few days, has created fresh turbulence on the internal money exchange market.

As a result, even Bangladesh Bank has devalued taka again.

Economists say although exports have picked up significantly in recent months, it has failed to offset the imbalance created in the forex market by the low remittance and high imports.

According to Bangladesh Bank data, the dollar price started rising from Tk84.8 on August 2 to Tk85.15 on August 24 in a span of just three weeks. After that, it remained stable for some time. On November 14, it rose again to Tk85.8.

Finally, on January 9, Bangladesh Bank devalued the BDT against the US dollar to a large extent in order to tackle pressure stemming from an increase in import payments and encourage remitters.

On Tuesday, the selling price of dollars in the inter-bank transaction was Tk86 as well. But the exchange rate in the kerb market was Tk89.7 to Tk90 per dollar.

Former lead economist at World Bank's Dhaka office Dr Zahid Hussain told Dhaka Tribune: “Prices must have an effect on supply in the economy. The same thing has happened with the devaluation of money.

“On one hand, the supply of remittances is declining. It is having an impact on declining reserves. On the other hand, due to the increase in the price of goods in the international market, the import cost has increased. Due to such erratic transactions of the dollar, Bangladesh Bank is being forced to reset the exchange rate of the dollar again and again,” he added.

According to the central bank, the flow of inward remittance dropped by over 20% year-on-year to $10.24 billion during the July-December period of FY22 from $12.94 billion in FY21.

In January 2022, after making a routine payment to the ACU against the imports of the November-December period of last year, forex reserves came down to $44.33 billion on November 5, from $46.29 billion of the previous working day.

Against this backdrop, the forex reserves slipped to $44.33 billion on January 5, in contrast to $46.39 billion on June 30 last year.

In this regard, Md Serajul Islam, spokesperson and executive director of the Bangladesh Bank, said: “When the import bills from ACU member countries get cleared, it leaves an impact on our forex reserves. But it is only temporary as the reserves usually rebound in the subsequent months.”

According to the central bank, Bangladesh's forex reserve rose to $48.04 billion on August 24 last year, setting a new record.

Mirza Azizul Islam, economist and former financial adviser to a caretaker government, told Dhaka Tribune: "Our country is import-dependent. I think this increased demand for the dollar has been caused by a slight decline in remittances and an increase in import costs.”

In such a situation, Bangladesh Bank has taken steps to sell dollars to meet the increasing demand in the market, which is a timely step, according to Islam.

He also said it would be better for Bangladesh Bank to continue selling dollars at this time.

According to the Bangladesh Bank data, banks have purchased around $2.493 billion from the central bank to settle import bills.

According to the central bank’s latest figures, it sold $451 million in December last year, which was $568 million in November.

In the months of August, September, and October, the volume was $305 million, $641 million, and $518 million respectively — a total of $2.493 billion.

The depreciation, however, has not helped contain the escalation of import payments, which stood at $31.16 billion in the first five months of the current fiscal year, up 54% year-on-year.

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