Dollar price drops by 50-70 paisa as remittance inflow, exports swell

Highlights

• Dollar value declines by over 0.50% in two weeks
• Pressure of overdue import payments on banks eases
• Dollar supply in market may keep rising on falling demand
• Further decline in dollar price likely in coming days

The value of the dollar against the taka has dropped as there has been notable growth in remittance and exports over the past few months, which has led to a significant decline in the pressure of overdue import payments on banks, as well as a drop in the demand for the greenback.

Last Thursday, banks had to pay a rate of Tk122.50-122.60 to purchase remittance dollars. Yet, even in the second week of this month, banks were offering rates as high as Tk123-123.20 to collect remittance dollars. This means that in a span of two weeks, the dollar price has fallen by 50-70 paisa, or over 0.50%.

Several senior bank officials have predicted that there is a possibility of a further decline in the price of the dollar in the coming days. They say there is little chance of a significant increase in dollar demand over the next few months as most investors are waiting for the next election before making new investment decisions. As a result, import demand related to investment is unlikely to rise.

On the other hand, growth in remittance and exports remains strong, they say, adding that if this growth continues in the coming days, the supply of dollars in the market will further increase, which will ultimately contribute to a reduction in the exchange rate.

Commenting that the price of the dollar is falling due to strong growth in remittance and exports, Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, told TBS that the foreign currency market has now become much easier compared to before. 

"One of the key reasons is that the volume of overdue payments by banks has decreased. As a result, the pressure that previously existed on the exchange rate has also eased," he said.

At a discussion event with the Bangladeshi community in Doha, Qatar, last Thursday, Power, Energy and Mineral Resources Adviser Muhammad Fouzul Kabir Khan said, "At the time the interim government took office, Bangladesh had outstanding dues of $3.2 billion in the power and energy sector, including LNG and oil payments. Over the past eight months, this has been reduced to $600 million."

Inflation may ease

Noting that a fall in the dollar's value could help reduce inflation, Mahbubur Rahman said that when the dollar's price drops, import costs decrease. "As a result, there is an opportunity for the prices of imported goods to come down. Moreover, there is not much growth in imports; the volume of imports each month remains more or less at the usual level. Import growth in the private sector is also relatively stagnant," he said.

According to central bank data, Bangladesh received $23.75 billion in remittances from July to 21 April of the current fiscal year, which is 28.6% higher compared to the same period of the previous fiscal year.

Mentioning that the central bank's instruction to keep the dollar rate below Tk123 has also had some impact on the fall in the dollar's price, the managing director of a private bank said that the central bank's stance has now become much more flexible compared to before when banks used to receive phone calls from the central bank to keep the dollar rate lower. 

"Now, the situation is somewhat calmer. They have advised us not to buy remittance dollars at rates above Tk123 unless absolutely necessary. We are trying to follow that guidance, as regardless of whether the dollar rate is high or low, banks' profits remain fixed. In line with the central bank's directive, we are making a maximum profit of Tk1 per dollar," he said.

Although there is a directive from the central bank, the fall in the dollar's price is mainly due to an increase in supply, commented the deputy managing director of another bank. He explained, "The dollar market has always depended on demand and supply. At present, the dollar supply is in one of the best positions in the past two years. 

"On the other hand, imports in the investment sector, including capital machinery, have declined significantly. As a result, the demand for dollars is low. Due to these factors, banks now hold more dollars compared to before, leading to a downward trend in the exchange rate."

Sheikh Mohammad Maroof, managing director of Dhaka Bank, also said the dollar's rate has dropped because of a decline in demand.

He said, "There is no significant new investment taking place in businesses, resulting in a noticeable decline in the import of capital machinery. The pressure of importing essential goods, which usually occurs ahead of Ramadan, is also absent now. 

"Overall, the demand for dollars has dropped considerably compared to before, leading to a fall in the dollar's rate."