The exchange rate of the US dollar in Bangladesh is likely to rise further as the Bangladesh Bank moves towards a more market-driven foreign exchange policy, a condition set by the International Monetary Fund.
During a meeting with BB officials on Wednesday, the IMF emphasised the need for a flexible, market-based exchange rate, BB officials said.
BB plans to issue a circular shortly to publish a reference rate for foreign currencies based on daily bidding rates provided by banks, they said.
The circular was supposed to be published long before, but BB failed to do so due to various reasons. The central bank now aims to align the reference rate with the rates at which banks buy and sell dollars, they added.
Earlier, on May 8, BB introduced a crawling peg exchange rate system, allowing limited fluctuation within a defined range or reference rate.
However, despite significant fluctuations in the actual market rate, the reference rate has remained unchanged for months, which was pointed by the IMF.
The discrepancy between the reference rate and real market dynamics failed to accurately reflect the current demand and supply situation.
Although the current reference rate stands at Tk 120 per dollar, banks have been buying dollars at higher rates, (near Tk 125 each) which do not reflect actual market conditions.
A shift to a more flexible system could push rates even higher, given the prevailing demand-supply dynamics, BB officials stated.
The IMF concluded its week-long visit to Bangladesh, reviewing progress under its $4.7 billion loan programme.
Bangladesh has already received $2.3 billion since 2023, with the next tranche expected by December.
Additionally, the government has sought an extra $3 billion from the IMF.
On August 7, the IMF said that it would continue its ongoing $4.7 billion loan programme in Bangladesh despite the government change.
The exchange rate was Tk 94.7 in July 2022 and Tk 84.8 in July 2021.
The sharp rise in the dollar rate has led to higher import costs, placing businesses under pressure and contributing to increased consumer prices.
It could erode purchasing power and consumer spending, economists warned.
Bangladesh, like many other countries, has foreign debt denominated in US dollars. As the taka depreciates, it will take more taka to repay the same amount of foreign debts in dollars.
It can lead to higher debt repayment obligations for the government and businesses, economists said.
The depreciation of the taka has further burdened the government and businesses with higher foreign debt repayment obligations.
Compounding the issue, the interim government鈥檚 focus on debt repayment has offset high remittance inflows and export earnings.
Instead of injecting dollars from foreign reserves to the market, the central bank has sourced dollars from commercial banks to meet debt obligations, exacerbating the dollar crisis in the banking sector.
Foreign exchange reserves, measured by IMF standards, have dropped to $19.2 billion as of December 11, reflecting the ongoing strain on the economy.
