Despite the injection of US$ 6.07 billion, an all-time high, into the market by Bangladesh Bank, volatility still persisted in the foreign exchange market. The central bank injected $ 5 billion between July 1 and May of the current fiscal and another $ 1 billion in the last 20 days. The volatility in the forex market on Wednesday worsened from what was the day earlier on Tuesday.
Remittance flows to Bangladesh declined in May as higher rates of US dollars in the informal markets are prompting many migrant workers to shun formal channels, creating additional pressure on the country’s already heated forex market. The inflow stood at $1.88 billion last month compared to $2.17 billion in the same period of the previous year, data released on Wednesday by the BB showed. Effective measures are needed involving all stakeholders to improve the remittance flow.
Economists suggest that if the price of the US dollar was allowed to go up naturally, the demand for it would have gone down and the supply would have gone up. They questioned how much dollar Bangladesh would be able to save by cutting development expenditure, curtailing foreign tours and raising import duties. To them, it is faulty to contain inflation by artificially holding back the dollar price. If imports come to a standstill due to the dollar crisis, inflation will go up by leaps and bounds.
In this context, they said Sri Lanka did the same mistake, like keeping the exchange rate fixed, and what Bangladesh was doing now. Sri Lanka had injected dollars into the market and Bangladesh Bank is also doing the same. So, why are we not learning from the Sri Lanka crisis? In Sri Lanka, when the dollar ran out of reserve, the market became volatile. Higher imports against moderate export and remittance flow brought the forex reserves of Bangladesh to $42.29 billion on May 25 while it was 46.15 billion on December 31 last year.
Since the economic activities have accelerated in the Middle Eastern countries and their revenue earnings are picking up, their demand for workers will go up. And there is the possibility that the existing workers would get higher wages. Ensuring stability in the foreign exchange market is highly essential to give a leg-up to our remittance flow. We want the central bank to make efforts to reduce the existing gap between the formal and informal remittance sending channels. If the gap widens, remitters will prefer to send their money through informal (hundi) channels.
