Recently, Bangladesh Bank verbally instructed banks to cap the buying price of the dollar at Tk 122.85 per dollar, which had been slightly higher in recent days. Bangladesh Bank intends this capping to maintain control over inflation.
However, the International Monetary Fund strictly discourages this type of control; rather, a market-based purchase and sale mechanism is considered more effective. This capping may cause a scarcity of dollar liquidity in the near term.
It is obvious that if the dollar rate is reduced, it will be helpful for importers in the importation of raw materials. Thus, industrial growth may be augmented. Due to higher COGS, manufacturers are unable to generate sufficient operating profit despite increased revenue. So, this capping may help manufacturers survive, especially those having a high dependence on imported raw materials. Also, it may help control inflation for the time being.
But the fact is if the IMF delays the disbursement of the tranche of $1.3 billion out of the $5.5 billion programme, the crisis may put pressure on reserves for future payment obligations. So, it is now a matter of concern not to make the IMF reluctant to disburse the committed amount.
Truly, all imposed conditions cannot always be fully complied with. However, there should be some maneuvering in policy-making. Otherwise, inflation control will not be possible if the value of money deteriorates due to an unwanted dollar crisis. Therefore, the dollar rate should be market-based.
Kawsik Azad Pronoy
A Banker