Taka unlikely to depreciate soon

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Shakhawat Hossain
Bangladesh taka is unlikely to depreciate to any significant extent soon as the central bank is opposed to any such move due to high inflation in the country and recession in major global economies.
The Policy Analysis Unit (PAU) of the Bangladesh Bank (BB) maintains that the present circumstances and the current state of macroeconomic fundamentals do not provide enough justification of pursuing any policy of letting the exchange rate to depreciate to any significant extent.
The PAU said: "Any large depreciation of Taka against the greenback is not likely to increase Bangladesh's exports appreciably in the present global situation."
"On the other hand, it might adversely affect the country's gradually improving domestic growth prospects through raising import cost of capital goods and other essentials," it added.
The BB pointed out that sharp cross-rate movement through strengthening and weakening of currencies of the country's major trading partners had a big impact on local exporters' competitiveness.
It wants a close watch on exchange rate movements of those countries' currencies to assess pressure on the country's current exchange rate policy.
The BB observed that although Bangladesh's real effective exchange rate had somewhat appreciated in recent months, the country still enjoys competitiveness.
"In addition, since the exchange rate issue has inflation dimension, Bangladesh needs to confront the challenging tradeoff between keeping inflation down and achieving better competitiveness through exchange rate management," it added.
The BB said the country should avoid market interventions aiming at depreciating local currency to any large extent when priority is to reducing inflation rate from its current double digit level.
It is necessary to seriously monitor the external trade and the inflow of remittance for adopting an appropriate foreign exchange policy to curb high inflation amid deepening global economic meltdown, said BB.
"In adopting an appropriate foreign exchange policy, Bangladesh needs to take into account a number of considerations including direction of trade covering both origin of imports and destinations of export," said a recent PAU study on global financial meltdown.
The other crucial areas identified by the central bank are industry composition of trade flows and origin of capital inflows, especially remittances.
The BB's comment came in the wake of sharp cross-rate movements through strengthening and weakening of currencies of the country's major trading partners and falling prices in commodity items globally in recent months.