Dollar rally continues in the face of repeated interventions by the Bangladesh Bank to keep foreign currency market stable with its latest sales of $740 million to banks just in 19 days of this month – more than double the amount it injected into the market in August.
Taka has lost its value by Tk0.85 per dollar between July and October, which crossed Tk90 for the first time ever in the kerb market on Monday.
The interbank dollar exchange rate has picked up a rising trend because of growing market demand.
In this situation, economists and business leaders say the Bangladesh Bank should further speed up its pumping of dollars into the market to put a rein on the soaring currency.
According to Bangladesh Bank, the interbank dollar exchange rate on Monday was Tk85.65. On the other hand, different money exchange houses traded the greenback at Tk89.9-Tk90.1 in the open market, according to local exchange houses.
When the dollar price began to go up in July this year, the interbank dollar exchange rate was Tk84.80, while the rate in the open market was Tk87-Tk88.
The continued rally of the greenback prompted the central bank to change its course – from buying to selling mode to help the forex market handle the sudden surge in demand for the greenback from importers and travellers.
The Bangladesh Bank bought a record $8 billion in the fiscal 2020-21 amid low imports and high inflows of remittance. However, till 19 October of this fiscal year, the central bank has sold $1.68 billion to banks, according to the central bank's data.
In spite of the central bank's intervention staying strong, the dollar continues to gain against the local currency. In August, Bangladesh Bank sold $305 million to banks and the amount more than doubled to $641 million in the next month and shot up to $740 million just in 19 days of October.
Amanur Rahman, director of Aman Money Changer, said, "Since the 1980s, I have been in this business but never saw the dollar price jump so high.
The dollar rate has increased in the kerb market owing to increased travel abroad, he added.
Mohammad Hatem, executive president at the Bangladesh Knitwear Manufacturers and Exporters Association, said, "When dollar rates rise, importers get affected. That is why we asked the government to fix a specific dollar rate for exports and imports, which has not been implemented yet."
The ultimate sufferers from a rise in dollar rates are common people, he added.
Asking for anonymity, a former governor of the central bank told UNB that the dollar price has recently jumped owing to two reasons: firstly, increased travel abroad for different needs including study, health and entertainment after the Covid-19 restrictions were eased, or lifted around the world; secondly, increased capital flight from Bangladesh.
Giving an example, the former governor said some recent incidents of banking- and e-commerce-related scams hint at the increased capital flight from Bangladesh.
Dr Mirza ABM Azizul Islam, economist and former adviser to a caretaker government, told The Business Standard that the Bangladesh Bank can increase its dollar sale to rein in inflation.
Inflation is still tolerable. Nevertheless, the Bangladesh Bank has to be more far-sighted as the country is now working on the post-pandemic economic recovery, he said.
"Our foreign aids that now come through the Foreign Exchange Department need to be released quickly, which will help keep the dollar rate stable," the economist pointed out.
In the last fiscal year, Covid-19 support raised external finance commitments to $9.35 billion, of which, $7.21 billion was disbursed.
Md Serajul Islam, executive director and spokesperson of the Bangladesh Bank, said, "The dollar rate has risen as a result of increased LC settlements. That is why we are selling dollars. There are also adequate dollar reserves. We are ready to supply to banks as per their demands."
Price hikes of different products in the global market have led to the dollar price fluctuation, which will not last long.
"Our export earnings have also started to increase, remittances will also gain momentum. Then the situation will start to return to normal, the dollar price will be stable," said the central bank official.
Asked whether inflation could rise abnormally, he said, "Inflation is rising in one month and declining in the next. It depends on a number of components. So I do not see inflation going out of control as a result of the temporary rise in the dollar rate.
The upward trend in dollar rate is a reflection of the resumption of economic activities, observe industry insiders. That people have started to move out after the relaxation of Covid-induced travel restrictions also has led to a rise in demand for cash dollars, they added.
Moreover, inward remittances that kept the market flush with dollars during the pandemic have become sluggish since the beginning of the current fiscal year. This also has put pressure on the dollar market.
Business leaders say dollar prices have started to go up owing to increased imports, but their export earnings have not returned to pre-pandemic levels.
That is why exporters are unable to capitalise on high dollar rates. Instead, rising import costs are putting pressure on the local market, they add.
Central bank data shows in July-August this year, Bangladesh's imports amounted to $10.84 billion, while exports were $6.73 billion, leading to a crisis of dollars.
Md Mazed, an onion importer, told TBS, "We are paying more on onion imports owing to a rise in dollar prices, resulting in a hike in the key cooking ingredient's price in the local market."
When asked about any benefit for remitters because of high dollar prices, Professor Dr Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said, "The high dollar rate will not benefit remittance inflows much, instead, it will give a rise to inflation."