Strengthening taka leaves no impact on forex market

There was no impact on the exchange rate of the US dollar against the taka yesterday as the price of the greenback continued to remain high even though bankers, under an unofficial directive of Bangladesh Bank, appreciated the local currency by Tk 0.50 a day before.

On Wednesday the Bangladesh Foreign Exchange Dealers' Association (Bafeda) and the Association of Bankers, Bangladesh (ABB) decided to sell each US dollar at Tk 110.50 to importers and buy it at Tk 110 from exporters and remitters.

Yesterday, a majority of banks were paying remitters as much as Tk 122 to Tk 123 and exporters Tk 113 to Tk 114 per US dollar while charging importers Tk 116 to Tk 118.

A half a dozen of bankers told The Daily Star on condition of anonymity that the forex market moved at its own pace and the Bafeda-ABB rate was not working at all.

Nowadays it had become a trend for the Bafeda-ABB leaders to announce a new exchange rate a day after meeting the central bank governor, they said.

Bankers accused the Bafeda and the ABB of forcing the rates upon them, for which they were not adopting them.

There is still a lack of US dollars in context to demand in the market, so it is not the right time to appreciate the taka against the US dollar, bankers said.

Businesses running small and medium-scale operations are unable to open letters of credit to import goods for the shortage, said industry insiders.

Bangladesh Bank organised a press briefing yesterday where its spokesperson, Md Mezbaul Haque, told journalists that the Bafeda-ABB decision was correct and time-befitting.

The rate is determined based on supply and demand, he said.

"We used the American greenback for purchasing services, goods and meeting foreign liabilities but now imports are being monitored, which is why the demand has declined," he said.

However, bankers refuted this statement, saying that the demand for the US dollar was still high in the market.

Md Mezbaul Haque said there was a surplus of $1 billion in the current account and the negative financial account was continuously shrinking.

Some banks have a shortage of US dollars while some have an excess and this mismatch is creating volatility in the market, as per the BB spokesperson.

The Bafeda-ABB model of fixing the dollar rate has failed to cool down the forex market, said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

"A floating exchange rate is very essential for our forex market right now. If it is not possible then the central bank should introduce a managed floating exchange rate," he said.

A managed floating exchange rate is open to market fluctuations but has maximum and minimum limits.