The volatility in forex market has reported to reach its pick amid an unprecedented dollar crisis created by ballooning current account deficit and money laundering under trade misinvoicing.
Sources said, the prevailing dollar crisis has forced many commercial banks to buy dollar even at higher rates from curb market to meet import payments of traders and state-owned firms.
Some banks are also facing problems in opening LCs for big public projects and fuel import by state-owned agencies.
Meanwhile, the central bank continues to supply dollar to the banks to help them meet import payment obligations as well as to cool the forex market volatility.
The market volatility also forced the central bank to make upward readjustment of dollar rate several times this month.
Bangladesh Bank (BB) has so far sold US$1.67 billion to commercial banks. In last fiscal year, it had sold US$2.31 billion to meet growing demands for greenback in the market.
The foreign currency reserves dropped to UD$31.49 on March 13 this year from US$ 32.49 as of June 30 last year due to supply of dollar to the banking channel.
“The inter-bank dollar rate has already hit all-time high to Tk 84.25 (on March 20) as a result of dollar crisis, which was Tk 83.90 on the first day of this year,” a BB official told The New Nation yesterday on condition of anonymity.
The greenback is even costlier for foreign travelers who are paying Tk 86 to buy a dollar.
“Forex market volatility reached its pick due to the persisting dollar crisis in the banking channels. It also led to a considerable devaluation of the local currency against the greenback,” former Finance Adviser to the Caretaker Government Dr AB Mirza Azizul Islam told The New Nation yesterday.
The nominal effective exchange rate of Bangladeshi Taka (BDT) had depreciated by 4.5 per cent in fiscal year 2017-18.
According to Bangladesh Bank, the nominal exchange rate stood at Tk 82.1 as of June 2018 compared with Tk 79.1 as of June 2017 (period average).
“Money-laundering, higher import payment against capital machinery, petroleum products and food items are other reasons that worsened the dollar crisis,” he said.
When asked, Dr Mirza Aziz said, the central bank is injecting dollar into the exchange market to ease the dollar crisis. But the effort may not work in the long-run unless export and remittance earnings are not boosted to plug the trade deficit,” he added.
The deficit in current account widened to US$9.78 billion during the fiscal year (FY) 2017-18 which was US$ 1.3 billion in previous fiscal (2016-17).
However, the deficit in current account stood at US$ 4.37 billion in the first seven months of the current fiscal year (2018-19)
The current account deficit, which was 0.5 per cent of GDP in FY17, expanded to 3.6 per cent of GDP in FY18.
“Higher import growth along with a meagre exports growth led to higher trade deficit. As a result, current account deficit widened significantly in FY 18,” says a Bangladesh Bank report.
“Bangladesh’s balance of payment crisis stems from a rising trade deficit, which in turn results from rising imports,” said a BB official, adding, “But it is a temporary phrnomenon. The situation will improve in future.”
Bangladesh’s total import touched US$58.86 billion (C&F) in the fiscal year 2017-18, while the country earned US$ 36.66 billion from export proceeds during the fiscal, showing a higher deficit of US$18.25 billion in during the period compared to the deficit of US$ 9.47 billion in fiscal year 2016-17, according to Bangladesh Bank.
“All the fundamental economic indicators are now improving with exports and remittance witnessing an upward trend while the imports are decreasing and the current account deficit is also being overcome gradually,” said the BB official. He said the central bank continue to pump dollar in the market to override the dollar crisis.
“The price of the currency depends on market sentiments and the central bank has let the markets determine the exchange rate. Like many currencies around the world, the local currency is under immense pressure from a rising US dollar,” he added.
“We have to face problems in opening LCs for big projects due to demand-supply mismatch of greenback,” Managing Director of Sonali Bank Md Obayed Ullah Al Masud told The New Nation.
He said the central bank should continue its foreign currency support to the banks to meet their import payment obligations.
When asked, economist Dr Ahsan Manur said, the currency devaluation has two-way effects. It helps reduce trade deficit, as currency depreciations are usually associated with an increase in exports and a decrease in imports.
“It will also push up prices of imported goods and thereby fuel inflation further.”
