BDT depreciates slightly vs dollar in 2009: Citibank

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FE Report
Bangladesh taka (BDT) depreciated marginally by 0.39 per cent against the US dollar (USD) in 2009 following a rising demand for the greenback in the last couple of months, the Citibank N.A. said Saturday.
By the end of September last the banks stopped to queue up daily for selling their foreign exchange holdings to the central bank, but now they are occasionally buying the greenback from the Bangladesh Bank (BB).
"From October the BDT started to depreciate mar ginally. At the end of 2009, the USD/BDT rate hovered around 69.20, marking a depreciation of only 0.39 per cent from the opening level of 2009," the US banking giant Citibank, N.A. said in its annual market update, released on the day.
With a lower demand for the foreign exchange for import payments mostly due to falling commodity prices and a robust supply of the greenback thanks to the relatively stable export growth and the continuing inflow of workers' remittance, the BDT has gained commendably in 2009 contrary to the other Asian currencies.
The central bank of Bangladesh also acted to keep the exchange rate of BDT broadly stable and retain the external competitiveness with continuous purchase of the USD from the commercial banks directly.
"This led to a stable foreign exchange market with BDT trading at around 69.06 until the end of September, 2009," the Citibank, N.A. added.
Quoting data on import letters of credit (LC) for the July-November period and export data for July-October, the US bank said there was no significant upturn or slackening in economic activities in the last two quarters of 2009 compared to the earlier quarter, but signs started emerging that output activities would pace up from early 2010 onwards.
With a slackening credit growth during the early part of the year, the market saw surplus liquidity, which drove down the inter-bank call money rate significantly.
The call money rate, which hovered around 10 per cent in January, came down to nearly 8 per cent by the end of the first quarter of the year, according to the update.
To ease the credit condition in the backdrop of lower domestic inflation and the global recession, the country's central bank also reduced the rates on repurchase agreement (repo) and reverse repo by 25 basis points to 8.50 per cent and 6.50 per cent from 8.75 per cent and 6.75 per cent respectively on March 11 last.
The following six months saw the call money rate dip towards near the zero level, with most of the deals settled at 0.1 to 0.25 per cent, as the BB temporarily stopped taking away money from the market through its reverse repo tool.
However, from early August, 2009, the central bank resumed its auction of 30-day BB bills to mop up some of the excess liquidity from the market.
"Subsequently, the BB's repo and reverse repo operations also resumed on October 12, 2009 with the rates realigned to 4.5 and 2.5 per cent respectively in order to increase economic activities following a lower credit demand and excess liquidity in the money market in the previous two quarters," the Citibank update added.
In conformity with the repo rates, the call money rates also settled around the 4 per cent level to close the year.
On the other hand, the government securities' yield curve went through a major downward shift in 2009. Rates for government securities of all tenors dropped by 280 to 563 basis points (bps) from their January levels.
The yields, generally known as interest rates, on short-end bills with 91 days, 182 days and 364 days tenors dropped by 563 bps, 462 bps and 399 bps respectively, the update noted.
However, rates of mid and long-end government bonds with 5 years, 10 years, 15 years and 20 years tenors declined by 280 bps, 297 bps, 345 bps and 390 bps respectively.
The decline in yield was highest for the 91-days bill, which lost 563 bps.