Taka becomes weaker against dollar again

The taka has become weaker against the dollar again as the central bank has increased the price of the greenback by Tk0.50 to Tk109.50 in case of selling from forex reserves.

The central bank sold around $69 million dollars at the new rate today, according to sources at the Bangladesh Bank.

This is the third time the taka was devalued in FY24. The price of a dollar was Tk109 in July this year.

Over the last one year, the country experienced a currency devaluation of Tk15.05, equivalent to 16%, from Tk94.45 per dollar a year ago.

A senior official of the central bank told TBS that the central bank is selling dollars from reserves at the interbank rate. The interbank rate for dollars rose by Tk0.50. So the central bank has also increased the selling rate of dollars from the reserves.

The Bangladesh Foreign Exchange Dealers Association (Bafeda) and the Association of Bankers, Bangladesh (ABB) adjusted the exchange rate of the US dollar on Monday. As per an announcement by the two organisations, the new interbank dollar rate was set at Tk109.5, which was Tk109 earlier.

Exporters are currently getting Tk108.50 per dollar, while the rate is Tk109 for remittances and Tk109.5 for import settlement.

Bafeda Chairman and Sonali Bank Managing Director and CEO Md Afzal Karim told TBS, "The central bank is selling dollars according to our declared rate. The Sonali bank is trying to manage the dollar and pay the import debt on time.

"The payment of letters of credits for imports is usually delayed by a day or two in our country. We are getting dollar support from the central bank. Besides, we are also buying dollars from the market. Overall, the situation is better than before."

According to the central bank, $1.15 billion has been sold from reserves since July of the current fiscal year. In FY23, $13.58 billion was sold from reserves to alleviate the dollar crunch. Due to these reasons, the gross reserves decreased from $39.60 billion at the end of July last year to $29.72 billion on Monday. However, that is the old account of reserves. According to the International Monetary Fund's guidelines, the new gross reserves of central banks is $23.30 billion.

A senior official of the central bank told TBS, "Currently, dollars are sold to the state-owned banks only to clear the payments for importing of fuel and fertilisers. The reserves have not yet fallen to an alarming level.

"Last fiscal year, the average import expenditure was $5.83 billion per month. Accordingly, with the gross reserve we can meet the import expenses of at least four months. In that respect we are still safe."

He also said if the forex aid and foreign investment increases, the country's reserve will be positive. Bangladesh received 30 billion Japanese yen ($210 million) from Japan in July 2023. The reserve will increase if more such support and investment are available.

In the first week of July this year, Bangladesh faced its steepest currency devaluation in history, with the taka plummeting by Tk2.85 in a single day as the Bangladesh Bank started to sell the US dollar at an interbank rate of Tk108.85 from its foreign exchange reserves. Then the exchange rate was increased to Tk109 per dollar.

The central bank's initiatives are aimed at implementing a unified and market-driven exchange rate regime, putting an end to multiple exchange rate mechanisms to alleviate pressure on the country's forex reserves, and fulfilling one of the International Monetary Fund's conditions to qualify for a $4.7 billion loan package approved in January.

In the new monetary policy for the current fiscal year, the central bank announced to adopt 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 the Bangladesh Foreign Exchange Dealers Association 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, causing chaos in the forex market. The rate for selling dollars from the reserves was significantly lower than other market rates, prompting the Bangladesh Bank to initiate a faster devaluation to reduce the gap between the reserve selling rate and the market rate.