Dollar and taka situation gets a little better

The ongoing problem between the dollar and taka was alleviated by implementing specific measures by Bangladesh Bank, alongside the cautious approach adopted by banks. According to representatives from several institutions, there was a fall in dollar pricing and increased availability of taka money. 

The current exchange rate for remittance in US dollars is at Tk 114-115 per dollar, a little increase over the previous rate of Tk 120. Nevertheless, the designated exchange rate for transfer in US dollars remains constant at Tk 110 per dollar after a decline in remittance. 

Conversely, the liquidity problem that has recently impacted the banking sector has begun to alleviate. A few banks also implemented increased borrowing rates for deposit collection; however, not all banks adhered to this practice. 

According to bankers, many variables contributed to alleviating the issue between the dollar and the taka. These factors include a decrease in imports due to the central bank's influence and an increase in remittance and export revenues owing to the regulatory body easing limits on the dollar exchange rate. In addition, currency swaps help alleviate the taka difficulty.

According to Syed Mahbubur Rahman, the managing director of Mutual Trust Bank, imports declined. At the same time, profits from exports and remittances increased, leading to a decrease in dollar prices. Nevertheless, they began to increase once again. The future trajectory of the market will be comprehended in the following days. The central bank is engaging in many mechanisms to augment the supply of taka, therefore contributing to market stabilisation.

Reasons behind easing dollar crisis

The nation had a currency crisis with the outbreak of the Russia-Ukraine conflict in February 2022. The escalation of global crude oil and food prices led to a significant surge in import expenses.

In June 2022, Bangladesh paid 8.37 million US dollars for import bills. Consequently, the government imposed limitations on initiating LCs (letters of credit) and mandated a 100% cash deposit for the initiation of LCs to control import liabilities. The payment of import obligations declined to 5.96 million US dollars in January, followed by a decrease to 4.67 million US dollars in February. 

Bankers have reported that the majority of import obligations associated with LCs that were initially created with the condition of delayed payment have already been settled.

Consequently, there was a decline in the demand for dollars. However, there was an increase in remittance. There has been an increase in earnings from exports compared to previous periods. In general, the demand for dollars declined. 

The nation saw an increase in remittance inflows from 2.11 million US dollars in January to 2.13 million US dollars in February. The remittance earnings during the first 26 days of March amounted to 1.73 million US dollars compared to Tk 1.69 million US dollars in the same period of the previous year. 

The banks had a 400 million US dollar deficit at their dollar limit in the previous year. However, they have accumulated a surplus of 400 million US dollars now. 

The general director of Q Pail Limited, a plastic packaging manufacturer, said that banks experienced a delay in opening Letter of Credits (LCs) a few days ago. They will soon be opening Letter of Credits (LCs). Banks established the exchange rate for the dollar at Tk 115-116 per dollar, which was previously elevated a few days ago. 

Simultaneously, banks initiated a policy offering a 7 % interest rate on resident foreign currency deposits (RFCD). This allows for the unrestricted use of dollars from RFCD accounts domestically and internationally, augmenting the reserves of dollars and other foreign currencies held by banks. The current value of banks' stocks is 41 million US dollars, compared to 32 million US dollars one month ago. In addition, dollar prices in curb markets fell.

Reasons behind easing pressure on taka

On February 19th, Bangladesh Bank implemented a dollar-taka swap mechanism. Subsequently, financial institutions have retained surplus funds in Bangladesh Banks under varying conditions. In one and a half months, Bangladesh Bank acquired 1.50 billion US dollars, while banks earned around Tk 160 billion at an exchange rate of Tk 110 per dollar. Consequently, there was an increase in liquidity in the markets, which relieved the taka problem. Currently, banks are benefiting from liquidity facilities provided by the central bank by their specific requirements. 

In addition, it is noteworthy that the call money rate of banks declined to 8.90 % on Thursday after the increase in liquidity. On February 29th, the call money rate was at 9.81%. The interest rate associated with government loans does not show any upward trend. In February, the interest rate for the 91-day Treasury bill was at 11.35 percent, and this rate has remained constant throughout March. The lending rate of banks is currently determined by the average interest rate calculated from treasury bills. 

With the alleviation of the taka crisis, banks have prioritized gathering deposits. The borrowing rate offered by government banks is 9 %, while private banks are offering a slightly higher rate. Nevertheless, National Bank and United Commercial Bank are now accepting deposits with the stipulation that the deposited money must be doubled within five years.