Dollar-taka exchange rate should be fully market-based

Masrur Arefin: Dhaka University has organized the First Development Studies International Conference (DSIC 2024). City Bank always wants to be with such good initiatives. As you know City bank is a big bank and we have been doing well in all indicators for a long time. Our shareholders include International Finance Corporation (IFC) and American Express is also with us. I have been working as the CEO of City Bank for five years. Although not an economics student, such seminars on economics and development inspire me a lot. I think the discussions should be heard and understood. As active participants in the macro economy, we bankers always have to keep an eye on the ongoing economic conditions.
Again, our bankers have to pay attention to financial stability. Because we have to conduct banking business in this economy.
Currently, there is a lot of talk about the merger or acquisition issue of City Bank. It seems natural to reduce the cost of the bank at the moment; In other words, do not sponsor these events. Again, it seems that this is the right time to organize these events. Let there be a discussion and let the solution come out of the discussion of what to do.
As bankers, we see that the GDP till March has achieved 6 percent against the target of 7.5 percent. But inflation is of greater concern to our bankers. The inflation target was 7.5 percent. According to official data, inflation stood at 9.81 percent as of March, 2 percent above the target. But in reality, inflation is felt at more than 9.81 percent. Because when I go to the market, I feel that the price of fish and meat is high, the price of vegetables is high; Meanwhile, house rent, education-health and transportation expenses are also increasing. We have to run our banking business in this environment. In this environment, loans have to be collected from individuals and businessmen. If high inflation continues, its effects fall on all sides of the economy. Also read in our consumer business. People bring less products to the mills and factories, imports are less, capital equipment is less and so on.
I hope there will be a wide discussion on these issues in such an international conference. Still, I say as a banker, credit growth is slowing down. We bankers used to see, once the credit growth was 13 or 14 percent. This year the target was 10 percent. In February this year, it was 9.9 percent. Why credit growth is not happening – that is the question.
But the good thing is that exports are going in the right direction. The nine-month export target was $46.5 billion. We have done $43.5 billion. That means we are at 93 percent of the annual target on a run rate basis. This is a good thing. Another good thing is the remittance flow, which is helping us overcome the dollar crisis. We are bringing remittances through the banking sector. Our annual remittance target was $22 billion. The nine-month target was $16.5 billion. $17 billion dollars came in nine months. These two things are very positive.
Now let’s talk about imports. Many eminent economists and many people related to economics are present here. As we know, the import target for the current financial year was $80 billion. $53 billion to be made in eight months. In reality, the import was $44 billion against $53 billion. That is, the import is going to be less than the target this year. Is it good news for our economy at all? These lower imports are weighing on the overall economy. Low economic mobility means negative pressure on everything. We are bringing in remittances, but controlling imports. This decision was taken because of the huge amount of dollars lost through over invoicing and under invoicing. That’s a good thing. However, the import target for such large-scale economic growth should be $10 billion per month at the moment, subject to an adequate supply of dollars. But we had already touched $9 billion in the month. In this our annual import could be $120 billion. It should be remembered that products are manufactured from imports, products are sold in the domestic market and products are exported.
There are many things we need to do to increase the flow of dollars, the first of which is a dollar-to-cash rate that allows remittances to flow through legitimate channels.
Bankers are asked the first question, what is the liquidity situation? Surplus liquidity at the moment is Tk 1 lakh 60 thousand crore. Of this, Tk 95 thousand crore are given by the central bank. We are taking money from central bank at repo rate. Again, the central bank has provided liquidity of Tk 15 thousand crores to several banks. That is, if the actual liquidity is deducted from Tk 160 thousand crores, Tk 95 thousand crores, it remains only Tk 60-65 thousand crores, which is very insignificant considering such a big market. If you look at the previous years, there is this pressure of liquidity in the market. There is also the problem of money supply. The money supply was targeted to increase by 1.73 percent from last year. But the money supply increased by 9.70 percent till February. Contractionary monetary policy increased the money supply by 9.70 percent, which is inconsistent. Work should be done to eliminate these inconsistencies. Just as we bankers think, interest rates should be market based. The good news is that the honorable governor has recently told us that the interest rate will be market-based. We likewise want the dollar-money exchange rate to be fully market-based.
Our economy has huge potentials. Our remittances have come despite various crises. Our importers are willing to exchange dollars even at Tk 120. I think we should try to leave the economy as a supply-demand based economy. Therein lies the real calculus of inflation control. Meanwhile our crawling peg method is coming. We hope the crawling peg system will make foreign currency exchange rates more realistic. Now the rate is Tk 110. We are buying at Tk 109 and selling at Tk 110. But today the interbank dollar market is closed for two years. The inter-banking, which was the main source of our bankers’ dollars, on which we used to import, must be re-opened. We love the country and we want to support the import. There are many people who run the household by importing everything from capital equipment to small toys from China. For these sectors, i.e. looking at the SME sector, let there be a rate at which the dollar exchange rate will bring sufficient supply of dollars to support imports. Then a stability will come. For stability, we have to walk on the path of solving problems, thinking in that direction.
It is with the aim of solving this that fixed deposit products have come in offshore banking, which is a breakthrough for Bangladesh. Today the economy of Mauritius is 1$3 billion and their deposits in offshore banking are $800 billion. They are getting these deposits from all over the world. Today we conduct our foreign trade by taking large loans from foreigners in offshore banking. City Bank loan there is $300 million. But our deposit portfolio in this offshore bank is nothing. Now a great law has come, offshore banking is tax free. I think it will be the third largest source of dollar supply, and the second largest source after exports. Because someday Bangladesh will develop. People will not go abroad to do those jobs. A Bengali will not go abroad and work on the roads. They will be better off in Bangladesh – hope for that day.
We also remember the terrible times of last year. Last year our banking industry had a net open position (NOP) deficit of $600 million. Today all the banks together are $500 million, we are positive. That means we have exchangeable foreign currency to pay the import costs, which is very good. I personally think that the current Bangladesh Bank Governor Abdur Rauf Talukder wants to do a lot of good. He is a changemaker. The present learned Minister of State of the Ministry of Finance is also in front of me. Our request to them, let us remove the existing anomalies. If we adopt contractionary monetary policy, let’s keep it truly contractionary. And if an expansionary policy is adopted, it should be expansionary.
Now is the right time to talk about these things. I hope, there will be a good debate from which some solutions will emerge. City Bank is happy and proud to be associated with Dhaka University in such an event.
Masrur Arefin: Managing Director, City Bank Plc