Measures likely soon to trigger taka\\\'s erosion

Bangladesh Taka (BDT) is likely to lose its value against the US dollar as the relevant agencies are mulling appropriate measures to prop up falling exports.
The local currency remained strong over nearly two years as country's imports plunged.
By official count, the export earnings fell 7.63 per cent in October against its corresponding period a year before.
Apparel export, which accounts for more than 80 per cent of total exports, marked a fall. And it had an effect on overall shipments.
The government at its policy-level meeting last Wednesday was learnt to have discussed in detail the taka-depreciation proposal placed by the central bank.
It argued that many competing nations had allowed erosion in the value of their currencies and it relatively eroded competitiveness of Bangladesh's exportable products.
Bangladesh has been following floating currency-exchange rates since June 2003 by scrapping adjustable pegged system.
Under the existing exchange system, Bangladesh cannot depreciate its currency as the actual value of foreign currencies is determined by the market forces (demand and supply).
A source present at the fiscal coordination meeting at the finance division said the central bank proposed it as a strategy of boosting the export trade.
In case of depreciation of the local currency, the exportable products become cheaper to the buyers and the exporters get higher earrings in terms of local currency.
The central bank of Bangladesh usually mops up dollars from the market and it helps squeeze the supply of the greenback in the local market, leading to the erosion of BDT.
It hardly reduces the policy rates as a strategy to depreciate the taka.
He said the government wants to stabilise the BDT against the US dollar between Tk 79 and Tk 80.
The inter-bank exchange rate, as of November 12, was 77.48. And it is Tk 1.0 up on the kerb market.
The fall in exports led to a plunge in the current-account balance in the first quarter of the current fiscal year -- for the first time in more than two years.
The current-account deficit stood at $357 million in the first quarter (July-September period) of the current fiscal year, according to statistics from the Bangladesh Bank.
When contacted for comment on the government plan, leading economists gave their mixed feelings over depreciation.
Dr. Zahid Hussain, lead economist at the Dhaka office of the World Bank (WB), said if the government really prompts erosion in the value of its currency, it will actually not raise the exports.
"Bangladesh's exports are now in slump, and this is not for the currency issue rather image, especially as a result of post-Rana Plaza impact and others," Dr Hussain said.
Export growth depends largely on demands generated outside the influence of Bangladesh.
The situation in two major markets for Bangladesh garments are both rather discouraging.
However, the American economy is growing quite strongly but orders going to other destinations. The EU market is weak due to the poor growth performance in the Euro zone.
Dr. Hussain said: "I have doubt whether depreciation will improve the export."
He said depreciation causes inflationary pressures on the economy as Bangladesh imports many consumer goods.
Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), said the country should now put stress on how to raise the import.
Rise in import causes demand for the dollar and it then automatically weakens the local currency.
Imports went up 13.62 per cent in the first quarter. During the same period last fiscal year, the import growth was 7.77 per cent.
"To my mind, imports for investment could help depreciate the currency naturally," Dr Mansur said about the tricks of the trade.
Dr. Mansur noted that Bangladesh real effective exchange rate had been appreciating fast over past few years following high inflation in the country.
The weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation.
The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index.
This exchange rate is used to determine an individual country's currency value relative to the other major currencies in the index, as adjusted for the effects of inflation.
"This (real effective exchange rate) is eroding the competitiveness of exports.
"We should take move to address the issue of appreciation of real effective exchange rate," the economic analyst noted.
Dr. Khondker Moazzem, additional director at the Centre for Policy Dialogue (CPD), said the US dollar has got strengthened in recent times.
"In my view, considering the strong US dollar, our currency should be devalued to make the export competitive," he said.
The policy researcher mentioned that many countries that compete with Bangladesh in terms of apparel exports have depreciated their currencies. So there is need for a depreciation of the BDT.
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