An upward rally of the US dollar against major global currencies has started to reduce import costs but any chance for a declining inflation appears to be bleak thanks to the country's 'rogue' traders, officials and experts said Monday.
They said the stronger greenback could have a 'double-edged' impact on the overall economy, as it may dampen export growth in the Europe, while keeping the balance of payment under pressure.
"A strong dollar has already started to benefit the country. Import costs of major food items and raw materials are falling," a top central bank official told FE.
"We hope it would bring down the import-pushed inflationary pressure as the commodity prices have been declining across the board in almost everywhere in the globe," he said.
In the past one week, the dollar surged six-month high against euro, two -year high against pound sterling on the conviction that the credit woes are now spreading to top economies, other than the US.
Lehman Brothers, a top investment bank, has predicted that dollar will advance to $1.43 by yearend and $1.40 by the end of March 2009, compared with previous forecasts of $1.50 and $1.48.
Its main rival, Goldman Sachs, now sees the euro falling to $1.45 in three months. The euro should drop further to $1.40 over the next 12 months.
The surge in dollar has also led to a three-month decline in oil prices, which dropped to US$112 a barrel from all time high $147 on July 11.
Prices of major food items such as rice, wheat, soybean and palm oil have also declined ranging from 10 to 30 per cent.
The top central banker said dollar's rise against euro and pound might hit export performance as Europe is the largest destination of Bangladeshi goods, offsetting the advantage the country would have gained from lower import cost.
The country exported goods worth $14.11 billion in the last fiscal with the 27-nation European Union accounting for more than 52 per cent of the total shipments.
The BB official said it will take some time to assess the advantage of a stronger dollar on the country's balance of payment.
Bangladesh Institute of Development Studies (BIDS) research fellow Zaid Bakth said strong greenback bodes well for the country's overall economic health, but a reduced import cost would unlikely to help the consumers.
Due to depreciation of Indian rupee and Chinese Yuan against dollar the traders will have to spend less to import from the country's two main supply sources, he said.
The country imported goods worth US$ 20.12 billion in the last fiscal year with India and China accounting for more than 30 per cent of the costs.
"Definitely, it will help ease pressure on the country's balance of payment," he said.
The Indian rupee weakened to a one and half month low against dollar and was trading at at 43.28/29 per dollar on Monday while the Chinese yuan has declined by 0.70 per cent.
Mr Bakth said the low import cost of major commodities would unlikely be reflected in the local markets because of the rogue traders.
"They (importers and traders) utilise import price only in case of price hike. There is hardly any instance that these traders cut down prices in line with the international market prices," he said.
An economist working at a multilateral agency said 'chances for declining inflation look very slim' despite the falling commodity prices in the international market.
An average 37 per cent hike in fuel prices from July and a significant growth in domestic money supply would continue to "put further pressure on the already high inflation".
"Credit growth is 25.4 per cent until June while reserve money grew by 22 per cent. I don't think inflation will cool down if the central bank continues to follow wrong monetary policy," he said.
He admitted that strong dollar will at least reduce the country's import payment bills which was a major worry for the central bank throughout the last fiscal.
In March this year, the caretaker government was forced to take 'emergency disaster fund' worth around $220 million from the International Monetary Fund (IMF) in the wake of one of the worst balance of payment crisis in recent years.
