- The exchange rate hit as high as Tk125 per US dollar in the informal kerb market on Thursday
- Importers said that the dollar price hike has already affected them badly
The exchange rate of the US dollar was raised by Tk7 to Tk117 on Wednesday. The decision by the central bank translates into Taka’s depreciation of 6.36% against each US dollar in a day.
Much to the inconvenience of many, especially importers, the exchange rate hit as high as Tk125 per US dollar in the informal kerb market on Thursday.
Wednesday’s move means that Tk100,000 is now devalued to Tk93,640.
Importers said that the dollar price hike has already affected them badly as the range of payment for the letters of credit (LCs) opened for small and medium consignments has increased by Tk1 crore.
The case of large importers is rather worse.
SM Obaidullah, owner of Alvina Textiles apparel factory, on Wednesday said: “I was scheduled to pay against an LC on Wednesday.
“I was informed by the bank concerned to clear the payment by the afternoon. But the amount I paid in the afternoon was Tk30 lakh more than what the bank had mentioned in the morning.”
Due to the decision of the Bangladesh Bank (BB), the businessman was forced to spend Tk1 crore for the overall import process.
The central bank’s decision came in line with a crawling peg system.
Soon after the move, the greenback was hard to find in the kerb market amid reports of a hoarding of the currency by traders for profits in the future.
What led to the crisis
As a condition for a $4.7 billion loan to Bangladesh, the International Monetary Fund (IMF) had advised setting the exchange rate of the foreign currency at a flexible rate.
The IMF wanted the BB to follow a market-based approach in determining the exchange rate.
Experts and economists fear that power and energy prices will shoot up because the central bank used to release US dollars at Tk110 for importing commodities such as power and energy.
It is notable that the BB has for long fixed the rates of the dollar. Despite economists consistently suggesting a flexible exchange rate system, the central bank never paid heed, leading to the kerb market chaos.
A crawling peg system is a method of exchange rate adjustments that allows a currency with a fixed exchange rate to fluctuate within a band of rates.
It is a hybrid of fixed and floating exchange rate systems.
Currently, three countries — Botswana, Honduras and Nicaragua – use a crawling peg, according to the IMF.
The central bank also said that the crawling peg system will be tethered to a carefully chosen basket of currencies within a defined band corridor.
The BB, in a monetary policy statement on January 17, said that the crawling peg system would be linked to a carefully selected basket of currencies within a predefined exchange rate corridor.
Who gains, who loses?
The dollar price hike will help exporters and expatriates benefit. Nevertheless, the move will push up import costs, ultimately affecting general citizens badly.
As Bangladesh imports a large number of daily essentials, mostly food items, the prices of products will hike automatically.
An official of a leading consumer goods company said: “Importers are in a fix. Many banks will now discourage importers from opening LCs. And the trend will increase.
“If the import volume drops, products will get dearer,” he warned.
The higher dollar exchange rate will inflate the inflation rate too. The purchasing capacity of the people will remain the same if their income does not grow now.
Travel costs and fees of overseas education will soar too.
BB denies crisis
Mesbaul Haque, executive director and spokesperson of BB, told UNB that there are enough dollars in the banks, and people can go to banks to buy dollars.
“Our retail dollar has sufficient reserves and supply is good. Now who will sell it or not is up to the person. Those who do not get dollars at the money exchange can buy dollars from banks. The central bank now has $50 million in reserve to meet retail and LC demand,” he added.
Prime Minister’s Private Industry and Investment Adviser Salman F Rahman on Thursday said the BB has taken the right decision by fixing the dollar exchange rate.
A man intending to travel abroad for medication, who came to Motijheel on Thursday, said: “I approached six money exchange outlets and even a bank. But they declined to give me any dollars.”
Many money changers said the demand for US dollars has dropped drastically. They are determined to wait a few more weeks to see where the dollar rate settles.
