BDT depreciating against USD due to inflation, high import bills

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Nizam Ahmed The Bangladesh currency has been depreciating against the US dollar over the past three years owing to higher domestic inflation and rising import bills, traders and bankers said on Sunday. They expect the US dollar to become pricier in the coming months as the country's import bill this year is poised to rise further as the authorities will need to import a large quantity of fuel-oil to run power plants and other essentials. "It will be a challenging task to stop further erosion of the external value of Bangladesh Taka (BDT) as we will need to import more fuel oil, power plant equipment and relevant essentials items in the coming months," sources in the country's central bank told the FE. However, an upward trend about exports- mainly garments- and inflow of remittances from the expatriate workers is otherwise considered a cushion for the country's economy, which witnessed a trade deficit of $7.69 billion in last fiscal year (FY) 2010-11. The BDT depreciated by Taka 5.40 on average against one US dollar over the last one year until Sunday (October 30) as the buying and selling rates in inter-bank transaction were Taka 76.15 and Taka 76.20 respectively. Exactly a year ago, the buying and selling rates of dollar were Taka 70.78 and Taka 70.80, the data of the Bangladesh Bank (BB) showed. In October 2009, the rates of buying and selling of dollar stood at the same level -- at Taka 69.15 in inter-bank trading. The depreciation of BDT started in 2008, before remaining stable for a considerable period of time prior to that. The inter-bank buying and selling rate rose to Taka 68.64 and Taka 68.65 respectively in October, 2008 from a uniform buying-selling rate of Taka 68.58 in January that year. The inter-bank call money rate was up by 10.41 per cent in September this year against an increase of 6.97 per cent last year, implying liquidity mismatch. "The external value of BDT came under pressure following the rise of import bills, in value terms, during the period of global slowdown when Bangladesh had, to spend extra bucks in foreign exchange to import food-grains, petroleum products and other essentials," an economist said told the FE. The inflation rate in September this year was 11.97 per cent against 7.61 per cent in the same month last year, against 4.60 per cent during the corresponding period of the previous year. "The inflationary pressure was up due to the hike in food prices in the middle of the year and the trend is still continuing, particularly in the wake of recent enhancement of fuel price and prevailing high prices of essential commodities across the country," said a business leader. Meanwhile, the authorities went for distribution of food at subsidised prices in cities last year following the rise in food prices. This arrangement has been extended this year to areas across the country to support the poor who cannot afford to buy food grains at market-driven prices. However, remittance inflows and export earnings have been showing an upward trend, giving some relief to the authorities concerned to manage the macro-economic situation and to ease off some pressures on the country's balance of payments (BoP) position. The remittance inflows increased to $2.97 billion in the first quarter of FY 2011-12 against $2.69 billion in the corresponding quarter of the last fiscal when remittances rose by 6.0 per cent to $11.6 billion, according to the country's central bank. The central bank expects remittances to reach some $12.56 billion in the current FY 2011-12. Exports in the first two months of FY 2011-12 (July August) reached $4.15 billion against $2.89 billion in the corresponding period of the last fiscal year, when exports hit a record $22.9 billion. "The trade deficit is likely to cross $9.0 billion in the current FY 2011-12 due to high import costs of fuel-oil and also import of food and other essentials," a central bank official said. But some analysts are sceptical about sustained growth of remittances particularly because of the turmoil in the Middle East and North Africa and also about maintenance of export growth rate this year in view of the troubled financial conditions mainly in European countries, the markets of which account for a substantial volume of Bangladesh's merchandise exports.