Dollar gets pricier on rising imports

High import expenditure coupled with low remittance inflow have pushed up the price of the US dollar against the local currency both in the banking channel and the open market, putting the foreign exchange market under pressure.

The cash US dollar rate increased by Tk0.30 to Tk0.40 over the past one week and is currently trading at nearly Tk88.

The LC (letter of credit) rate also rose by Tk0.30 in the past week to reach Tk85.25 on Sunday.

The dollar crisis has prompted the Bangladesh Bank to backtrack on its dollar buying spree and sell dollars to banks in order to keep the market stable.

The Bangladesh Bank bought a record $8 billion US dollars in the fiscal 2020-21 amid low imports and high inflow of remittance.

However, since August this year, the Bangladesh Bank has sold $305 million dollars to banks, according to the central bank's data.

The upward trend in dollar rate is a reflection of the resumption of economic activities, observe industry insiders.

That people have started to move out after the relaxation of Covid-induced travel restrictions also has led to a rise in demand for cash dollars, they added.

In July this year, Bangladesh's imports registered a 21.63% growth while the growth in exports was negative 10.59%, leading to a crisis of dollars.

Moreover, inward remittances that kept the market affluent with dollars during the pandemic situation have become sluggish since the beginning of the current fiscal year. This also has put pressure on the dollar market.

The inflow of remittance from expatriate Bangladeshis dropped by 19% year-on-year in the first two months of this fiscal year. The remittance inflow registered a 50% year-on-year growth in the first two months of last fiscal year.

Sirajul Islam, executive director and the spokesperson of the Bangladesh Bank, told The Business Standard that the demand for dollar is increasing in the wake of increased LC price payments for importing Covid vaccines and a rise in imports of capital machinery in recent months.

The dollar rate will return to the normal level if exports increase in proportion to the rise in imports, he added.

"There is no other sign of the dollar rate going to an abnormal level because we have adequate reserves of dollars. To keep the market stable, we are selling dollars to banks as per the demand," said Sirajul Islam.

Professor Dr Mustafizur Rahman, distinguished fellow of CPD (Centre for Policy Dialogue) said, fall of remittance is the main reason behind dollar crisis.

However, import expenditure picked up which signals that economic activities started to resume, he added.

Md. Shaheen Iqbal, head of treasury of BRAC Bank said the rise of dollar price mostly due to high import as business activities started to normalize.

Though, import of capital machinery import still negative but food and other commodity goods picked up. The price of commodity goods increased in the international market which also contributed in the import expenditure, he said. 

Moreover, student movement to abroad started after lifting travel barriers. Students want to carry cash dollar in their travel quota, causing pressure on curb market, he said.

Travelling to abroad started to rise as some countries relaxed travel restriction on Bangladesh.

For instance, Bangladesh resumed flight with India under air bubble agreement from 5 September as regular flight is still restricted due to corona situation.

Some other countries like Turkey, Austrelia, Oman, UAE allowed Bangladeshis at some conditions.

The opening of air travel put pressure on cash dollar in the country, said industry insiders.

The US dollar has been appreciating against Taka since the beginning of last month, after having been stable for quite a long time.

The interbank dollar exchange rate rose by Tk0.40 last month. The interbank dollar rate set by the central bank is now Tk85.20. From July last year to August this year, the dollar rate was stable at Tk84.80.

According to information obtained from banks on Sunday, most of the local and foreign banks in the country were charging businesses Tk85.25 against $1 in meeting import liabilities. However, the rate of cash US dollar was above Tk87 in most banks, while a few banks were selling $1 for Tk88.5.

According to the money exchange rates declared by banks on the central bank's website on 2 September, the dollar rate was highest Tk88.5 in BRAC Bank, NRBC Bank and ICB Islami Bank while most other banks were selling $1 for a price ranging from Tk87 to Tk88.

The National Bank of Pakistan was selling cash dollars at the lowest rate of Tk85, while the exchange rate in Bangladesh Commerce Bank was Tk85.6 – the lowest among the local banks.

In the open market – also known as kerb market, $1 was being sold for Tk87.8-Tk89 on Sunday while the buying price was ranging from Tk87 to Tk87.3.