Racks up inflation, intensifies pressure on BOP
Taka continued to depreciate in the past week on the foreign-exchange market, ramping up the already high rate of inflation and intensifying the pressure on the country’s balance of payments.
Among the major world currencies, the exchange rate of US dollar had advanced over the week from around Tk 75 to around Tk 75.20 in inter-bank transaction and soared from around Tk 78 to around Tk 79 on the kerb market, said officials of different private banks and money exchange houses on Thursday.
They said the exchange rate of pound sterling had risen over the week from the range of Tk 114-Tk 121 to that of Tk 115-Tk 123 and the price range of euro from Tk 104-Tk 110 to Tk 107-Tk 110.
Economists said the depreciation of taka, which had lost 5 per cent of its value against dollar over the past six months, was having a direct impact on inflation by raising the cost of refunding the foreign currency-denominated debts and thereby pulling down the export proceeds and raising the import costs.
According to the central bank, the price spiral of dollar is caused by a sharp rise in the volume of imports and non-realisation of export proceeds.
There is a huge pressure on the economy at the moment as the price of dollar is on the rise and export bills are pending for a long time, said a Bangladesh Bank official.
According to the BB data, the buying rate of dollar on Tuesday stood at Tk 74.4500, pound sterling at Tk 118.3904, and euro at Tk 104.4608, while the selling rates were Tk 74.4700, Tk 118.4500, and Tk 104.5038 respectively.
All of the three international currencies have appreciated sharply against taka over the last six months as the price of dollar had ranged between Tk 71 and Tk 72, euro Tk 95 and Tk 97, and pound sterling between Tk 110 and Tk 113 in January 2011.
Against this background, Bangladesh Bank on Monday asked the authorised dealer banks to execute export transactions in strict compliance with the regulatory instructions so as to realise export proceeds within the prescribed period.
The BB, in a circular issued on the day, also directed the banks to ensure proper settlement of export transactions to ease the pressure on the country’s foreign-exchange market.
‘It is observed from the recent trend of realisation of export proceeds that the authorised dealers are not exercising due diligence in executing export transactions, resulting in a rise in trade credit,’ the BB circular said.
According to Bangladesh Institute of Development Studies director general Mustafa K Mujeri, who once served as the BB chief economist, the depreciation of the domestic currency affects the country’s foreign trade and inflation through three different channels.
Bangladesh is a net importer; it buys more goods and services from foreign nations than what it sells to them, which leads to a net outflow of foreign currencies, the BIDS chief said.
He also pointed out that ‘in recent months, despite the attempts of Bangladesh Bank to squeeze the money supply by raising policy rate as well as interest rates, inflationary forces have not been tamed.’
The inflation rate had been hovering at a double-digit figure in the four months since March, standing at 10.17 per cent in June.
According to the Bangladesh Bureau of Statistics, the average inflation in the last fiscal year was 8.78 per cent.
Mujeri suggested ‘establishing a less controlled and more market-oriented system of determining the currency exchange rates – one that is governed by demand and supply, which will allow Bangladesh to move towards having a more effective monetary policy for controlling inflation.’
‘The depreciation of taka is a warning for the economy,’ said Centre for Policy Dialogue executive director Mustafizur Rahman, adding that the BOP and overall trade deficit had been increasing due to taka losing its value.
According to the BB statistics, as of May, the country’s trade deficit in the previous fiscal year was $7 billion.
Mustafizur said, ‘The government should take immediate steps to stabilise the foreign-exchange market to reduce the adverse impacts of the depreciation of taka.’
Courtesy of New Age
