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BDT deflates 5.15pc against US$ in a year

It may raise inflation in near future

Siddique Islam | January 09, 2018 00:00:00

The Bangladesh Taka (BDT) depreciated by 5.15 per cent against the US dollar ($) during the last one year despite selling of the greenback by the central bank to keep the foreign exchange (forex) market stable.

The US$ was quoted at Tk 82.75 each in the inter-bank forex market on Monday against Tk 78.70 a year before, according to the marker operators.

Such depreciation of the local currency against the US dollar may fuel inflationary pressures on the economy in the near future, according to the market operators.

The central bank directly sold $1.10 billion to the commercial banks from July 01, 2017 to January 08, 2018 as part of its ongoing foreign currency support.

"We're selling the foreign currency to the banks to help settle the outstanding letters of credit (LCs) against imports, particularly of fuel oils, food grains and capital machinery," a senior official of the Bangladesh Bank (BB) told the FE on Monday.

Such liquidity support may continue in line with the market requirement, the central banker hinted.

BB resumed its foreign currency support through selling the US dollar to the banks in February 2017 after an interval of two months.

A total of $1.27 billion was sold from February 2017 to January 08, 2018, according to the central bank's confidential report, available with the FE.

BB, however, did not sell any US dollar in last June. Earlier, BB sold only $8.0 million to the banks in November 2016.

The central bank is providing the US currency support to the banks for settling import payment obligations, particularly of food grains, capital machinery and fuel oils.

The exchange rate of the local currency vis-à-vis the greenback is primarily dependent on the demand for settling import payments as well as the availability of the latter from exports and inward remittances.

The supply of US dollar has decreased in the recent months mainly due to widening of the country's overall external trade deficit along with a declining trend of inward remittances, the market operators explained.

The country's overall trade deficit rose by nearly 109 per cent to $5.79 billion during the July-October period of FY 2017-18, from $2.77 billion in the same period of the previous fiscal.

Higher import payment obligations than export earnings pushed up the trade deficit significantly during the period in FY 18 compared to the same period of FY 17, they added.

The inflow of remittances fell by 0.53 per cent or $72.46 million to $13.54 billion in 2017 from $13.61 billion a year ago, the BB data showed.

Meanwhile, the country's overall balance of payments (BoP) slid to a deficit of $225 million during the July-October period of the ongoing fiscal, which was in a healthy surplus of $2.04 billion in the same period of FY 17.

The BoP deficit was $360 million in the first quarter (Q1) of FY 18.

"The ongoing BoP deficit indicates that there is a real shortfall of the greenback," a senior treasury official of a leading commercial bank told the FE.

He also said if the central bank does not desire further depreciation of the BDT against the greenback, it needs to take steps to ensure adequate supply of the US dollar in the market immediately.

The country's forex reserve rose to $32.02 billion on Monday from $31.99 billion on Sunday despite selling of the US$ to the banks.

The treasury official, however, said the country's exporters and wage earners, who are working abroad, are being benefited from such depreciation.

The demand for the US currency is gradually increasing, mainly due to higher import payments pressure, particularly of consumer items, including food grains, petroleum products and capital machinery.

The import pressure may fall slightly next month, as most of the deferred-payment LCs are set to be settled by the end of this month, according to the market insiders.

But the pressure may rise after a couple of months for settling import payment obligations, particularly of capital machinery, they added.

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