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Bangladesh - February 26, 2024

Trust in dollar no won crawling peg

Dr Enayet Karim : The economy, saddled with the dollar during last two years, is yet to recover from its severe bad condition. Not only that; At this time the crisis has increased. Reserves, which were $48 billion, have now decreased to $20 billion. Imports have been tightened to protect the dollar, hampering production. Not that many dollars have been saved; Rather, the challenge is to keep the dollar at a safe level at this time.
In such a situation, Bangladesh has taken many steps. Now Bangladesh Bank has the latest tool called crawling peg. A crawling peg is a method of adjusting exchange rates. Here the price of foreign currency is allowed to fluctuate within a certain range.
Here the price of foreign currency is allowed to fluctuate within a certain range. There are also doubts about how effective this strategy will be. The central bank is reportedly preparing to implement this crawling peg after Eid.
There are fears that inflation will increase due to the upcoming Ramadan. Despite all this, the improvement in reserves has not been visible recently. Even after increase in export earnings, jump in remittances, borrowing from abroad including International Lenders, reserves have dwindled to Tk 25 billion. In such an unusual situation, the price of the dollar has moved away from the announcement of the release of 100 percent of the market, giving a glimpse of increasing the price of the dollar through the crawling peg corridor from the first week of next March. But as inflation spiked last January, Governor Abdur Rauf Talukdar ordered the implementation of the crawling peg to be suspended for the time being, sources said.
According to the sources of Bangladesh Bank, the price inflation has decreased consistently in last November and December, but it has increased to 9.86 percent in January. Inflation was 9.41 percent in December and 9.56 percent in the previous month.
In this situation, if the price of the dollar increases against the taka, the price of the product will increase further. Which will fuel inflation. For this, the central bank governor has decided to move away from the decision to increase the price of one taka dollar in the crawling peg corridor system. Because, the price of products increases naturally around Ramadan and Eid. For this reason, the crawling peg before Ramadan Eid is not being implemented. Because, the government had set the target of keeping the average price inflation within 6 percent for the current financial year.
Institute for Inclusive Finance and Development executive director Mustafa K Mujeri said inflation has increased mainly due to rising international transport costs, reduced supply of dollar-crunched goods. Inflation has already increased around the Eid of Ramadan. For that reason, if the price of the dollar is increased at the moment, inflation will be triggered.
According to Bangladesh Bank, even in the dollar-crisis, $9 billion has been sold from reserves for the current fiscal year 2023-24. This has reduced foreign exchange reserves. Gross reserves were $25.33 billion on Sunday. According to BPM-6 manual it is $20.20 billion. However, expendable net reserves were $15.47 billion. However, on August 25, 2021, the reserves stood at $48.04 billion.
Spokesperson and Executive Director of Bangladesh Bank Majbaul Haque said the reserve mainly depends on remittances, export earnings, foreign loans and grants. Remittance usually increases during Eid. It is difficult to say that reserves will increase only if remittances increase.

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