The amount of US dollar injected into the market so far by Bangladesh Bank has surpassed $6 billion in the current fiscal year, creating further pressure on the country’s foreign exchange reserves that are now depleting fast.
Bangladesh Bank supplied dollars to the market to the tune of $6.03 billion between July 1 and November 23 in order to help lenders clear import bills.
The central bank injected a record $7.62 billion last fiscal year with a view to keeping the exchange rate stable.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the central bank should reduce its dollar injection into the market to prevent further declines of the reserves.
This, however, will put further pressure on the exchange rate of the dollar against the local currency, he said, adding that there was no other scope but to do so.
“If the foreign exchange reserves get depleted more, the uncertainties faced by the economy will widen in the days ahead,” he said.
The reserves yesterday stood at $34.10 billion in contrast to $45 billion in November last year, showed data from the BB.
International Monetary Fund (IMF), however, said the country’s actual foreign exchange reserves now stand at around $27.5 billion considering its investment in export development funds and some other areas.
Mansur said the country may manage loans from the IMF in February while the World Bank may provide the fund in the next June-July period, meaning that the country has still a long way to go.
But the reserves are now losing $1.2 billion to $1.3 billion each month, which is why there is no scope to allow for depletion of the reserves further, he said.
If the central bank reduces its dollar sales, imports may decline further but the trend will not last long, he said.
Allowing a reduction of the dollar sale will depreciate the exchange rate of the taka further, but it will subsequently encourage the remitters to send their money through the banking channel, he said.
Remittances decreased 2.03 per cent year-on-year to $7.19 billion in the first four months of the current fiscal year.
However, export earnings will increase if the exchange rate depreciates further.
The exchange rate of the taka stood at Tk 105.95 for each dollar on November 22, down 23.5 per cent year-on-year.
Zahid Hussain, a former lead economist of the World Bank’s Dhaka office, also opposed the BB’s stance to inject hefty amounts of US dollars on a regular basis.
“The BB might have sold the dollar predicting that the ongoing global unrest may calm down in the quickest possible time,” he said.
The BB should not depend on the global scenario, rather it should draw up its own policy to tackle the existing stress faced by the economy.
The market should be allowed to determine the exchange rate of the dollar ignoring the multiple fixed exchange rates set by banks, he said.
Remittances declined substantially after banks had introduced the multiple rates, Hussain said.
Banks now pay a maximum of Tk 107 for a dollar to remitters.
A record number of migrant workers have left the country for jobs abroad this year, but remittances are now decreasing, which is unusual, he said.
The remitters might have been sending money through hundi – an illegal cross border financial transaction system — which may be playing a role in the decrease of remittances, Hussain said.
If migrant workers get a better rate than the price offered by the hundi cartel, remittance inflow will regain its tempo, he said.
Contacted, a BB high official said the depletion of the reserves would continue until January, after which the reserves would become stable.
He said, “The government will manage foreign loans from foreign sources including several multilateral lender agencies.”
There is little scope to curb the injection of dollars into the market as the funds are being supplied for the import essential commodities, he said.