Now is an opportune moment to trial market-based exchange rate: StanChart CEO Bijoy
Bijoy backs Bangladesh’s shift to a market-based exchange rate, citing economic stability and urging strong market oversight to prevent manipulation
Naser Ezaz Bijoy, CEO of Standard Chartered Bank Bangladesh, believes now is an opportune moment to trial a market-based exchange rate.
He made the statement while speaking to The Business Standard today (14 May), as Bangladesh Bank Governor Ahsan H Mansur has announced a market-based exchange rate to meet the conditions of the International Monetary Fund (IMF) loan package.
Bijoy pointed to several supporting factors for piloting the market-based exchange rate: the recent stability of the exchange rate, the alignment between the real effective exchange rate (REER) and the market rate, significant reduction of current account deficit, stable FX reserve despite paying off $7.8b of legacy overdue fx obligations and the anticipated surge in remittances centring the Eid-ul-Adha.
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He also noted a shift in banks' behaviour, as they are now more self-reliant in managing their dollar needs, without reliance on the central bank to support settlement of private sector import Letters of Credit (LCs).
This evolving landscape, according to Bijoy, has prompted the central bank's consideration of a market-based exchange rate.
The StanChart Bangladesh CEO reiterated the long-standing expectation of a market-based dollar exchange rate for the country.
He, however, clarified that this does not preclude the central bank from intervening when deemed appropriate, aligning with the practices of other nations like India and Indonesia that also operate with market-determined rates.
The prominent banker highlighted that the central bank governor has always maintained that the exchange rate will need to be market-based, but the discussion was about the timing of it.
"The central bank has approved a market stabilisation fund of $500 million. This is not a small fund. However, the central bank has no intention of using this fund unless banks exhaust the alternatives," he said.
The experienced banker added, "Banks will have to try all alternative inflow channels for dollars, including bringing their overdue export proceeds, managing net open position (NOP) limits, and leveraging the interbank. Because, from now on, if any bank asks the central bank for dollars, the central bank will ask whether the bank has tried all its inflow channels."
"This will be used if there is any displacement in the market. If every bank behaves responsibly, then our exchange rate should be close to REER," he noted.
Commenting that there is not much reason for the market to destabilise, Bijoy said, "We will have an inflow of about $3.5 billion from several institutions, including the IMF, World Bank, ADB, in the next few months."
He called on the central bank to strengthen its market surveillance to ensure that no operator can manipulate the market. "A big factor for this will be to activate the interbank market."
Stating that attention needs to be paid to the movement of the dollar rate in the next month or so, Bijoy said, "The movement in USD against taka can be observed through the movement in the US dollar index, which is still recovering from a dip after US President Trump's reciprocal tariff declaration. If that becomes strong, the taka-dollar exchange rate may increase.
"Again, if the current account deficit increases significantly due to a sudden increase in commodity prices, the dollar rate may increase."
However, he notes that if the movement is due to speculative positions or manipulation attempts, the central bank should investigate and consider imposing meaningful penalties where due.
