Exchange rate should be left to market

Bangladesh has come a long way in 50 years – no doubt about that. We have left behind Malaysia and Singapore in terms of overall GDP size. We are dreaming of our economy becoming a trillion dollar one. Everything was going well for us. We even navigated the Covid-19 phase very well. Bangladesh is one of the top five countries in successfully tackling  Covid.

Even after the pandemic, our import in March last year was around $9 billion. During the covid period our imports were low. At the same time remittances were high and exports were good due to which our reserves increased a lot.

However, since the Ukraine-Russia war broke out in mid-February, our import liability has increased significantly due to the supply chain disruption and the rise in prices of goods in the global market. As a result, there is a huge deficit in our current account balance.

The government has imposed a duty on imports to preserve reserves, due to which the import has decreased by half from last July to December. 

During the Covid period LIBOR and the Secured Overnight Financing Rate rate was very low, only 1-2%. At that time our lending rate was around 9%, because of which our multinational companies have taken foreign loans. But in the last few months international rates have increased above 4-5%. As a result, the businessmen have faced problems from two sides, one is the devaluation of the dollar and the high international interest rate.

Many people are asking why the banks have opened so big LC? Because at that time we had enough liquidity in the inter market.'

Our deposit growth rate in 2022 was 5% but the loan grew more than 14%. It is not good. Apart from this, because of irregularities in some banks, people withdrew money. These reasons have created a liquidity crisis in the market.

Banks are collecting deposits at around 7% to 8% interest. The central bank has increased the repo rate. However, places from where the banks will get revenue have not been touched. The lending rate remained at 9%. Because of this, banks are not able to make good profit.

Currently, the problem for our banks is trade financing with international banks. They want to know what is our main source of revenue.  If we are not able to make profit from loans then it is difficult to confirm the LCs.

On the one hand, import rationing has been done to conserve reserves, and on the other hand, due to the dollar crisis, importers want to open LC even at the rate of Tk110. At such a time we should leave the exchange rate to the market.

Syed Mahbubur Rahman is the Managing Director and CEO of Mutual Trust Bank