The rising rate of the US dollar against the local currency has placed a huge burden on local importers and triggered a spillover effect on the local market over the last several months.
The Bangladeshi Taka devalued further against the greenback on Wednesday in the wake of dollar shortage in the banking sector.
The interbank exchange rate hit Tk 86.20 per dollar for the first time on the day, up from Tk 86 on the previous day, according to the data from the central bank. The exchange rate increased after a couple of months.
Importers also accused some banks of ‘manipulating’ a dollar crisis and imposing a high rate in case of opening letters of credit for import.
They said the Bangladesh Bank should look into the matter as commercial banks should not charge dollar rates exorbitantly against L/C opening.
The interbank exchange rate of the US dollar started rising since July last year due mainly to the sharp rise of import payment when the exchange rate of the American greenback was Tk 84.80.
A high official of a Chattogram-based industrial group told The Business Post that banks are imposing Tk 89 per dollar in case of opening letter of credit despite the interbank exchange rate being Tk 86.20 per dollar.
“As a result, we have been suffering much to pay import bills.”
“What is the Bangladesh Bank doing now to cool the market,” he posed a question, saying the regulator should intervene in the foreign exchange market by releasing the US dollar from the reserves, or else it would be prejudicial to industrialisation.
Mohammad Mustafa Haider, Group Director of TK Group of Industries, recently told The Business Post that the price of consumer goods would increase further in the local market as the import cost had risen drastically due to the hike of US dollar rate.
He said now most banks are imposing a high rate in case of opening a Letter of Credit (LC) by taking the advantage of an ongoing dollar crisis.
The Federation of Bangladesh Chambers of Commerce and Industry president MdJashimUddin attributed the price hike of industrial raw materials and essential commodities to the rise in import cost as the dollar rate has appreciated against Taka.
“The high import cost is creating pressure on importers; the central bank should pump US dollar into the market from the reserves, which will help cool the situation,” opined the chamber leader.
“We are continually injecting US dollar into the market. But, how much more can it be drawn from the reserves?” Bangladesh Bank Chief Economist HabiburRahman posed the question.
The banking regulator sold more than $ 3.73 billion to the country’s banks as of March 23, this fiscal year, as per the data.
Foreign exchange reserves stood at $ 44 billion on March 15, down from $ 46 billion on February 28 this year due to the US dollar selling spree of the central bank.
The BB chief economist said there was no other way without devaluing the local currency.
“However, we are also concerned about the current state of the foreign exchange market,” he argued.
Asked about the mercenary role of the country’s banks when it comes to letter of credit (L/C) opening, the central bank economist said the BB cannot interrupt on banks on rates against dollar.
“We simply cannot intervene in banks’ L/C rate in an open market,” HabiburRahman said.
Many banks are charging even more than Tk90 against each dollar, more Tk 4 than the BB-set exchange rate.
The mercenary attitudes of banks have left industrialists and importers in a dire situation stoking price hike for both essential food items and industrial raw materials.
An industrialist, however, said the BB’s stance on free-market, or open market is nothing but a vague term, as the central bank’s dictated deposit and lending rates do not go with its stated position.
“Open market formula should not apply only for exchange rate. The BB should fix the dollar rate against Taka to be complied by the country’s all commercial banks,” an aggrieved industrialist told The Business Post.
Why do banks face US dollar shortage?
Economists and bankers said the increasing trend in import payment due to the price hike in the global market, declining trend of remittance and the end of deferral support on payments for imports are the key reasons behind the dollar shortage.
The inflow of remittance to Bangladesh has fallen further this February despite increased incentives from the government, and experts blamed the return of “hundi” system – an illegal method of cross-border transaction – for this decline.
Bangladeshi expatriates sent $ 1.5 billion in February 2022, a 16 per cent drop when compared year on year.
February’s figure is 12.22 per cent lower than that in the previous month when remittance inflow stood at $ 1.7 billion, as per the latest data from the central bank.
Agrani Bank Managing Director and CEO Mohammad Shams-Ul Islam told that import payments have gone up sharply as the country’s business and the economy started to revive from the pandemic fallout.
Asked why banks are charging more than the interbank exchange rate, Agrani Bank Managing Director said that the public sector banks are not imposing higher rate than the declared buying/ selling rates. But, a number of private commercial banks are imposing higher dollar rates on importers than the BB declared rate, he blamed.
The US dollar was traded at more than Tk90 against each US dollar in the kerb market on Wednesday.
The BB purchased $7.93 billion from local banks in the last fiscal year.
During the July-January period of this fiscal, import payments rose by 46.23 per cent to $ 46.67 billion. However, ZahidHussain, former lead economist of the World Bank, Dhaka office, said the import payment is rising sharply due to price hikes in the global market.
“Not only Bangladesh, but all the import-dependent countries are also facing pressure due to such price hike. The Russia-Ukraine war also impacted the price of commodities in the global market,” added the noted economist.
Zahid observed that the high import payment and price hike in the global market hit the general people hard.
Courtesy: The Business Post