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HEADLINE
 
Businesses fear adverse impact of taka depreciation
BB governor sees stability returning to forex market
FE Report
3/24/2006
 

          Bangladesh Bank (BB) Governor Salehuddin Ahmed stated in Dhaka Thursday that the situation about the "current" depreciation of the local currency against the US dollar would improve shortly through effective operations by the treasury wings of the dealer banks.
There has been a sign of stability in the foreign currency market as the central bank has strengthened monitoring of transactions of dealer banks with their overseas 'nostro' accounts, realisation of export receipts and arrival of imported commodities against the settlement of letters of credits (LC), he said.
The BB governor also observed that the Bangladesh Taka lost its value against the US dollar due to a steep rise in its demand mainly because of the import of petroleum oil at increased prices, coupled with a significant growth in the import of capital machinery.
He was speaking at a discussion meeting on "Floating exchange rate management: How does it work for Bangladesh?, organised by the Economic Reporters' Forum (ERF) at the National Press Club in the city.
Presided over by the ERF President Zakaria Kajol, the meeting was also attended by BB Executive Director Allah Malik Kazemi, National Bank Limited (NBL) Managing Director M Aminuzzaman, former president of the Metropolitan Chamber of Commerce and Industry (MCCI) Kutubuddin Ahmed, Citibank NA Country Treasurer Bashar M Tereq and ERF General Secretary Nazmul Ahsan.
The Executive Director of Development Research Network (D.Net) Ananya Raihan presented the keynote paper at the discussion meeting.
When asked to comment on the allegation of a huge capital outflow by foreign investors, especially those involved in the mobile phone sector, Salehuddin said the BB has already started examining it.
"BB has initiated steps to scrutinise whether there has been any unusual outflow of capital by such foreign companies or not," said the BB governor.
Salehuddin, however, took a positive note of the current foreign currency reserve situation when the former MCCI president strongly criticised the BB's rigid policy of having the so-called comfortable foreign currency reserve at US 3.0 billion.
Kutubuddin held the view such a "comfortable" foreign currency reserve situation had yielded little result in stabilising the foreign currency market.
He also observed that the devaluation of Bangladesh Taka (BDT), along with higher inflationary pressures, would raise the cost of doing business significantly, affecting the country's industrial growth.
The governor, however, said that the central bank had sold US dollars worth 842 million and provided loans amounting to $ 312 million to the inter-bank market to help check the depreciation of the local currency.
He also said the BB's current foreign exchange rate policy is aimed at establishing a financial sector that can contribute to alleviating poverty.
About another comment on the BB's always foreign the line of prescriptions by the multilateral donors like the International Monetary Fund (IMF), the BB governor said: "It is not a fact at all We often strongly argue with the donors over their suggestions."
In his speech, Tareq said the country's dealer-banks are following three-tier foreign exchange rates which should be eliminated immediately for stabilising the foreign currency market.
He also stressed the need for a deep liquid foreign exchange market and also systems to review and assess the performance of market participants for its smooth operations.
Echoing the same tone, Aminuzzaman also blamed the country's nationalised commercial banks (NCBs) for following 'artificial' foreign exchange rates.
He, however, expressed the hope that the volatile situation in the foreign exchange market would be over in the days ahead.
In his keynote paper, Ananya Raihan said: "The exchange rate situation is not beyond control yet and the government has a role to play in this regard, not leaving everything in the invisible hands."
Making an in-depth analysis of the situation, he maintained that BDT was still appreciated against major currencies and reasons for such devaluation are mainly because of inflation and global exchange rate movements, instead of domestic demand-supply mismatch.
In May 2003, the government switched over to a full free floating exchange rate system, he pointed out.
UNB adds: The recent crisis in the foreign exchange market was claimed to have been over as the inter-bank exchange rate started coming down with the market correction to meet the demand-supply gap.
Sonali Bank, major dealer in the market, was also reported to have recovered from its liquidity crunch to build up a comfortable position of inflow and outflow of forex.
"Further comfortable situation in the inter-bank market is expected soon," Bangladesh Bank Governor Dr Salehuddin Ahmed told the dialogue at National Press Club organised by the ERF.
The inter-bank exchange rate came down to Tk 71.75 against one US dollar Wednesday from Tk 71.85 the previous day.
Chairman of Association of Bankers Bangladesh (ABB) M Aminuzzaman, also Managing Director of National Bank Limited, even forecast that the market trend could even take a reverse turn as the market recovered from "critical demand" situation while the local currency has been devalued excessively.
Trade body leader Kutubuddin Ahmed, however, feared a setback in the industrial growth with export slump due to a "spiral effect" of three factors -- unpredictable forex market, rising interest rates and increased prices of commodities in the international market.
In her keynote paper, Dr Ananya Raihan of D.net, suggested that the authorities should apply market regulatory instruments to address demand-supply mismatch and check inflation.

 

 
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