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Dollar weakens 4.4% last year on record reserves

  • Published at 06:24 pm January 7th, 2014
Dollar weakens 4.4% last year on record reserves

Record high foreign exchange reserves weakened dollar to as low as Tk77.75 in December from Tk81.35 one year ago, with 4.4% drop in value.

Forex reserves exceeded $18bn in December last year.

Predictions suggested further drop of the US currency against Taka, but the central bank’s move to buy dollar prevented it.

In order to encourage export, Bangladesh Bank purchased $5bn last year.

“If the central bank didn’t take the move, dollar would have dropped to as low as Tk70,” said Bangladesh Bank’s chief economist Hassan Zaman.

“This was to help the export grow as the Indian rupee continued to become weak against dollar,” he added, observing that exchange rates concern exporters more than importers.

“We have policy objective to avoid the volatility in dollar rate.”

According to the Bangladesh Bank data, dollar hovered in the range of from Tk79 to Tk77 throughout the last year.

“Depreciation of Taka was a right decision by the Bangladesh Bank through dollar purchase from market. It would encourage exporters and expatriates who send remittance,” said Mamun Rashid, a financial sector analyst.

He also said the dollar’s exchange rate would fall to Tk70 if the move was not taken.

The central bank buys dollar from market to prevent its appreciation and sells to hold depreciation.

Bangladesh Bank intervened to depreciate local currency considering the adequate forex reserves.

Banks are allowed to retain dollar 15% of their paid up capital as per the ceiling.

Depreciation efforts have also an impact on the inflation.

Hassan Zaman said: “Inflation may fall slightly if dollar is depreciated.”

“But we don’t intervene exchange rate to help importers. Import will rise according to demand.”

Slow growth in capital machinery import last year was not because of exchange rate intervention by the central bank, but because of dull investment picture.

Import expenditure rose 7.33% to $2.85bn in November compared to one year earlier.

In October, imports dropped 8.17% to $2.81bn. Import of rice declined to $16m in November $19.54m in October. It was $23.75m in September.

Wheat import declined sharply by 77% to $26.51m in November from $116.21m in October. September import was $173.38m.

Overall inflation was 7.15% in November compared to 6.55% one year ago.

“Bangladesh Bank launched two facilities for businessmen last. One of them is to take foreign financing through working capital for short time, and the other is bill discounting,” said Hassan Zaman.

Earlier, businessmen could take only term loans from the foreign financiers.

These two opportunities also worked as major source of dollar inflow as around $800m dollar entered the country last year through working capital financing and bill discounting.

“However, foreign financing affected the local lending, but our main objective is to support the country’s growth.” said the central bank’s chief economist.

“Bank’s profit is not our main objective. Our main objective is help economy to grow.”

The country’s total exports stood at $2.2bn in November compared to $1.1bn one year earlier.