Uniform exchange rate in the offing

The Association of Bankers, Bangladesh (ABB) and the Bangladesh Foreign Exchange Dealers’ Association (BAFEDA) will work together to fix a uniform exchange rate for all foreign currency exchange houses in a bid to bring stability back in the forex market.

The authorized dealer (AD) banks, which currently have different exchange rates, will comply with the rate, Bangladesh Bank (BB) Executive Director Md Serajul Islam told reporters on Thursday.

After a tripartite meeting of BB, ABB and BAFEDA on the ongoing forex crisis, Serajul said the central bank will review the interbank exchange rate after BAFEDA submits a proposal on it.

It was also agreed in the meeting that exporters will encash their foreign earnings with their dealer banks so that they cannot sell dollars at high price to another bank, he added.

“The central bank will continue its liquidity support in the banking sector as per requirement and if needed, the support will be given in future also,” said Serajul.

BB Governor Fazle Kabir presided over the meeting at the central bank headquarters. It was also attended by, among others, ABB President and BRAC Bank Managing Director Selim RF Hussain and BAFEDA President and Sonali Bank Managing Director Ataur Rahman Prodhan.

Selim and Ataur did not talk to reporters after the meeting.

On May 16, the central bank had devalued taka by 80 paisa against the dollar, the highest ever depreciation of the local currency in a single day.

Following that, importers said they were spending Tk 94-96 per dollar to pay import bills, terming it a huge burden.

On Thursday, the interbank exchange rate stood at Tk 87.90 per dollar — unchanged since Wednesday. It was Tk 87.50 per dollar last Sunday.

Wrong move?

Talking to The Business Post, former BB governor Salehuddin Ahmed said that returning to a uniform exchange rate after leaving it behind back in 2003 is not the right decision.

“It’s contradictory to the open market economy. It may help with quelling the current crisis but won’t be acceptable in the long term,” he added. “The central bank will have to abandon the uniform exchange rate after a while.”

BAFEDA had recently submitted a six-point proposal to BB, recommending several steps to stabilise the forex market.

It called for increasing cash incentives for remittance to 5 per cent from 2.5 per cent, a periodic review of the interbank exchange rate, and necessary adjustments of the rate based on market dynamics. Economists say the growing import costs amid the Russia-Ukraine war and the economic recovery from the Covid-19 pandemic led to the volatility in the forex market.

Letter of Credit (LC) settlements rose by 49.66 per cent to $61 billion between July and March of current 2021-22 fiscal year, according to central bank data.

As growing import payments put pressure on the foreign exchange market, taka lost its value by 3.65 per cent in the last 10 months even though BB injected US dollar into the market.

According to BB, the country’s forex reserves stood at $42.32 billion on Wednesday, down from $46.15 billion on December 31 last year.