Taka weakens even further

The Bangladesh Bank increased the exchange rate of the dollars from reserves by Tk0.50 to Tk110.50 on Monday. 

Since the beginning of July, the central bank has not announced the dollar price separately. In selling dollars from reserves, the central bank is following the dollar rate in the interbank market.

The taka depreciated to the highest value of Tk2.85 in the first week of July. Since then, the central bank has been increasing the selling price of dollars from the reserves according to the interbank dollar rate. As a result, the reserves' dollar rate stood at Tk108.85 in early July.

Last Sunday, the dollar rate for remittances, export proceeds and import settlement increased by Tk0.50. Subsequently, the inter-bank dollar selling rate was also increased to Tk110.50 on Monday.

This decision was made at a joint meeting of the Bangladesh Foreign Exchange Dealers' Association (Bafeda) and Association of Bankers' Bangladesh (ABB).

The local currency depreciated by 1.52% in the new fiscal year (FY24). The central bank pegged the dollar at Tk95 in the first week of September 2022, which means that the taka lost 16.32% of its value against the greenback over the past year.

A senior official of the central bank said, "We have decided to give preference to the interbank dollar selling rate in the case of selling dollars from the reserves." In that continuity, the value of money was reduced.

The official noted that state-owned banks are currently receiving dollar support from the reserves, primarily for settling government import Letters of Credit (LCs) related to essential commodities such as fertiliser and fuel. However, banks have been instructed to prioritise sourcing dollars from the market and using those funds for payments.

Meanwhile, the decline in reserves is being found unabated due to the continued sale of dollars from reserves. More than $2.5 billion has been sold from the reserves since July of the current fiscal year. As a result, the reserves have decreased to $21.71 billion as of 13 September.

A record $13.58 billion was sold from reserves in fiscal year 2022-23. However, the central bank bought $7.62 billion in the previous financial year as the dollar volume rose in the market.

In the new monetary policy for the current fiscal year, the central bank announced its adoption of a unified and market-driven single exchange rate regime. This approach allows the exchange rate between the taka and the US dollar, or any other foreign currency, to be determined by market forces.

In September last year, the Bangladesh Bank instructed Bafeda to set different rates for export, import, and remittance to control the rapid increase in dollar prices.

The multiple exchange rates were introduced as the dollar rate jumped to Tk115 in the open market, causing chaos in the forex market. The rate for selling dollars from the reserves was significantly lower than other market rates, prompting the central bank to initiate a faster devaluation to reduce the gap between the reserves' selling rate and the market rate.