Foreign exchange market volatility deepens

Volatility in the country’s foreign exchange market has further intensified despite a sharp decline in LC openings and a rise in exports and remittances in July.

On Monday, the interbank exchange rate of US dollar depreciated Tk 0.3 to hit a record Tk 95 and it reached a record high at Tk 115 in the kerb market, according to the Bangladesh Bank.

During the day, the central bank sold $139 million to the banks. In the last financial year, it pumped over $7.62 billion into the money market to curb the wild swing of the exchange rate.

On July 25, the interbank dollar exchange rate was fixed at Tk 94.70, which was Tk 85.80 on January 2.

From January to August, the local currency depreciated 10.66 per cent against the greenback.

“Actions against six bank executives have already been taken due to selling US dollars at a higher rate than the rate set by the central bank,” said BB spokesperson Serajul Islam.

The exchange rate of the dollar is spiking amid an ongoing crisis of the foreign currency owing to a widening trade deficit and declining remittance inflows, according to BB officials.

After a 31 per cent drop in LC openings in July, a 12 per cent rise in remittance income and a nearly 15 per cent increase in export earnings, the forex market was expected to stabilize. Instead, the volatility increased.

On July 26, the dollar price was quoted at Tk 112 on the open market due to a shortage of the greenback because of a rise in import bills and declining remittances, according to the money exchange traders.

Although the increase in dollar price in the kerb market does not have much effect on the economy, it encourages remitters to encourage remitters to send money using illegal channel.

Because remitters get more money per dollar from the kerb market than the banking channel. Therefore, experts suggested, that there should not be much gap between the inter-bank exchange rate and the open market dollar price.

The central bank adopted a floating exchange rate system in 2003 to effectively integrate with the global market.

However, it imposed tight control on the dollar exchange rate due to the massive depletion of the greenback it has in its coffer.

Finally, it reintroduced the floating exchange rate system in early June as part of efforts to stop the rapid devaluation of the taka and save its foreign currency reserves, but the taka’s fall has continued with no sign of an end to the volatility in the international market.