Imperious US dollar overshoots set exchange rates in Bangladesh as speculation reigns over the forex market, with kerb-market price rising up to Tk 128 per greenback, sources say.
According to economists and bankers, speculators rule the roost on the forex market in the wake of fall in the country’s foreign-exchange reserves, reportedly below US$20-billioin mark.
Currently, Bangladesh Foreign Exchange Dealers Association and the Association of Bankers Bangladesh fix the foreign-exchange rates in a paradigm shift.
They blamed some foreign-exchange houses abroad for floating such speculations to cash in on the volatility.
They expressed this view after the central bank’s latest move on the forex market as its volatility has deepened in recent weeks.
Currently, letter of credit (LC) opening costs around Tk 124 and on the kerb market the dollar price climbed yet higher to around Tk 128.
The Bangladesh Bank Thursday warned that it would monitor the forex market and take action if any bank overshot the BAFEDA-administered exchange rates.
Bankers involved with purchasing remittances said all exchange houses abroad are offering an exchange rate of Tk 122-23 per dollar.
Amid the ongoing crunch in foreign-exchange reserves, the exchange rate of the US dollar had increased by Tk 12-13 a dollar in 10 days.
As local banks are competitively purchasing the dollar at Tk 122-23 from foreign-exchange houses and money-transfer firms, remittance earnings increased about 30 percent in October.
As per an earlier announcement, banks were to sell dollar at Tk 111 apiece for import liability and purchase at Tk 110.50 from remittance and export earnings. There are incentives from both government and banks as well over the rate.
Since banks are exchanging dollar at higher rates and showing different prices in documents by cooking the books, a new crisis cropped up on the forex market.
Amid such a quandary, two associations of bankers — Bangladesh Foreign Exchange Dealers Association (bafeda) and the Association of Bankers Bangladesh (ABB) – held a meeting with the Bangladesh Bank high-ups on Thursday.
Earlier, the central bank used to fix the exchange rate. But, since September 2022, the two associations have been doing this following the dollar crisis caused by the Russia-Ukraine war that virtually upended normal global economic order, close on the heels of the pandemic.
Former lead economist at World Bank’s Dhaka office Dr Zahid Hussain says since September 2022, there has been speculation among the dollar earners as they wait for greater gain that leads to appreciation of the dollar against the taka.
“Bangladesh Bank’s latest move will not work as the country needs dollars to stabilise the market,” he told the FE.
Dr Masrur Reaz, chairman of the Policy Exchange of Bangladesh, feels that market monitoring by the central bank should be viewed as its regular job to come to grips with the intractable forex market.
“I think there is a huge mismatch between supply and demand of the dollar,” he told this correspondent.
The economist alerts that bringing stability on the forex market is a must, failing which speculation will go on.
The exchange rate at Tk 110.50 a dollar for remittance and export earnings is nearly ineffective as banks are purchasing remittance income at Tk 122-123 per dollar.
Small World, a US-based leading international provider of payment services, provides a little over Tk 122 a dollar.
Local banks, including Islami Bank, Social Islami Bank, Union Bank, South Bangla Bank, Southeast Bank, Dutch-Bangla Bank, Pubali Bank and BRAC Bank, receive remittances through the Small World gateway.
Besides, Taptap Send, another such payment-service provider, also announced it would exchange currency at a rate of Tk 122 a dollar to send money to Bangladesh.
Western Union’s website also shows the company maintaining an exchange rate of Tk 122 per dollar.
On top of the set differential rate, the government also provides an incentive of 2.5 per cent on the incoming remittance.
Policy Research Institute (PRI) executive director Dr Ahsan H Mansur says if the foreign-exchange reserves fall further, the volatility will rise.
“Under such a situation, it is hard for the central bank to manage the crisis as export and remittance may fall.”