Photo: Messenger
The central bank has increased the dollar price by Tk 7 to Tk 117, raising it from the longstanding rate of Tk 110. This move aims to address the lower dollar supply compared to demand in the market and to meet the conditions for an International Monetary Fund (IMF) loan. The significant single-day hike in the official dollar rate underscores the central bank's efforts to stabilise the currency market and fulfill the IMF's requirements.
Bangladesh Bank (BB) has issued a circular regarding this on Wednesday. It has said that from now on, the dollar will be bought and sold using a new method called 'crawling peg'. From September last year until yesterday, the dollar price was Tk 110, which was set by the Association of Bankers Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA).
However, on Wednesday, the central bank increased the official dollar price from Tk 110 to Tk 117. Businessmen said that as a result of this new decision, product prices will increase, and common people will be under pressure. They said that since Bangladesh is an import-dependent country, import costs will rise, negatively impacting imports, and product prices will increase. This will escalate inflation and increase the burden on the general public.
Md. Helal Uddin, former vice-president of FBCCI and president of the Bangladesh Shop Owners Association, told The Daily Messenger, “Our country is import-dependent. Our economy has been under pressure for a long time. Now, if the dollar price increases suddenly and significantly, it will have a negative impact, especially on imports. The cost of imports will rise, and importers will also be forced to increase prices.”
He added, “The sudden decision to increase the dollar price will put the common people under pressure. Inflation will rise, and people will suffer. However, we need to bring our economy to a stable place. In this case, if the price increases gradually, the suffering will be a little less. Bangladesh Bank should consider all factors.”
AB Mirza Azizul Islam, finance advisor of the former caretaker government, told The Daily Messenger, “It would be better if the dollar rate was fixed at Tk 117 through a crawling peg. However, there is definitely a possibility of an increase in inflation. It would be better to do it slowly rather than all at once.”
Meanwhile, the central bank introduced a 'crawling peg' system to fix the US dollar's exchange rate, leading to a large devaluation of the taka against the dollar. Under the crawling peg system, BB has set a price and asked banks to trade freely around this rate.
The IMF had been recommending a flexible exchange rate for Bangladesh as a condition of its $4.7 billion loan. The IMF wants BB to move towards a market-based exchange rate. While the central bank once set the price of foreign currencies, in recent months, two bank-based organisations have been fixing the dollar price.
According to a circular from the central bank, a crawling peg exchange system for buying and selling US dollars has been introduced from Wednesday. In this method, a 'Crawling Peg Mid-Rate' (CPMR) for the dollar is determined. From now on, scheduled banks will be able to buy and sell US dollars around the CPMR in inter-bank and customer transactions.
In the crawling peg system, the dollar price fluctuates within a certain range. Under the new system, the dollar value will increase or decrease within a band, considering various economic factors. Consequently, the dollar price cannot rise too sharply at once, nor can it fall drastically.
The managing director of a private bank viewed the introduction of this system as an effective step before transitioning to a completely market-based dollar exchange rate. He told The Daily Messenger on the condition of anonymity, “Banks can now trade dollars below or above Tk 117.”
However, the dollar cannot be traded much lower or higher than this rate. Banks must inform the central bank of the daily trading prices. This banker believes the ongoing dollar crisis will ease due to the crawling peg system's introduction.
Meanwhile, the central bank has increased the policy interest rate to curb high inflation, hiking it by 50 basis points to 8.5 percent effective today (May 9). With inflation consistently above 9 percent, the central bank is following a contractionary policy, raising the policy rate several times since May 2022.
As per the decision of BB’s Monetary Policy Committee, the overnight repo policy rate has been raised by 50 basis points to 8.50 percent from 8 percent. To manage bank liquidity, the policy interest corridor's upper limit has increased by 50 basis points to 10 percent for the Standing Lending Facility (SLF) from 9.50 percent. The corridor's floor for the Standing Deposit Facility (SDF) has risen by 50 basis points to 7 percent from 6.5 percent.
Messenger/Disha
