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Taka devalued again to tackle forex crisis

Economists for further depreciation against US dollar
Mehedi Hasan
24 May 2022 00:00:00 | Update: 24 May 2022 00:04:43
Taka devalued again to tackle forex crisis

The taka continued to lose its luster against the US dollar due to the widening current account deficit.

On Monday, the local currency recorded a decline of Tk 0.40 to Tk 87.90 against the US dollar, according to Bangladesh Bank.

This is for the six times the central bank devalued the taka this year.

However, analysts supported the devaluation of the local currency against the greenback to help boost imports.

They predicted that the taka would likely extend losses in the days ahead as demand from importers for payments and slow inflows from exporters may take a toll.

The taka was devalued by Tk 0.80 against US dollar on May 16--the highest slide in a single day in recent time.

“The interbank exchange rate of USD should be devalued further because the importers are paying higher than the rate set by the central bank,” Centre for Policy Dialogue distinguished fellow Mustafizur Rahman told The Business Post.

The interbank exchange rate and curb market rate should be reasonable, he added.

The economist suggested that the central bank should strengthen monitoring of the forex market so that importers can settle their import payments as per the rate set by it.

Due to the Covid-19 impact and the Russia-Ukraine war, costs of product supply and delivery go up. As a result, the currency of Bangladesh began losing its value like many other currencies in the world due to higher demand for US dollars.

The demand for the dollar recently grew primarily due to a sharp rise in import payments, dealers said.

The import payments stood at $61 billion between July and March of this fiscal year while exports were $36 billion, resulting in a trade deficit of $25 billion, the central bank data shows.

To meet the growing demand, the central bank has continuously been injecting the dollar into the market since August last year. It injected over $5 billion into the banking sector till May 16.

Mutual Trust Bank Managing Director Syed Mahbubur Rahman told The Business Post, “The depreciation of the local currency is very much needed as the demand for USD is high due to the growing import payment.”

Former governor of the Bangladesh Bank Salehuddin Ahmed said the volatility of the forex market had not only affected Bangladesh but also the whole world because of the Russia-Ukraine war and the reopening of the global economy after the pandemic.

He said the central bank had taken measures to tackle the situation but it was too late already, adding the regulator should have devalued the local currency earlier as other countries did.

Salehuddin said the banking regulator only estimates different indicators of the forex market in the monetary policy but should devalue the taka after reviewing the market situation.

The import value was higher than the volume, which was a problem, he said, adding the central bank and the revenue board should increase surveillance to tackle money laundering in the name of imports.

The forex reserve stood at $42.32 billion now, down from $46.15 billion on December 31 last year, according to Bangladesh Bank.