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Fast depreciation of Taka against Dollar worries stakeholders

bluesky

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Fast depreciation of taka against dollar worries stakeholders
FE REPORT | Published: October 23, 2021 08:44:08 | Updated: October 24, 2021 20:49:58
Fast depreciation of taka against dollar worries stakeholders



Business leaders have raised serious concerns over the speedy depreciation of Bangladesh taka (BDT) against American dollar as it is pushing the import costs up.

The BDT-dollar exchange rate in banks was recorded between Tk 86.20 and Tk 89.50 in Chattogram, according to the Chattogram Chamber of Commerce and Industry (CCCI). But the inter-bank exchange rate as per the Bangladesh Bank (BB) was quoted Tk 85.6 last week.

The CCCI, one of the leading trade promoters in Bangladesh, has urged the central bank to intervene in the soaring rate of dollar. It believes the import of capital machinery and other key food imports will suffer as a result of the volatility in the forex market.

CCCI president Md Mahbubul Alam suggested that the regulator take immediate measures in this regard. In a letter to BB governor Fazle Kabir on Saturday, Mr Alam noted that a steep rise in the value of dollar against taka would adversely affect economic recovery.

He said the central banks should ensure stability in the forex market; otherwise, both import and export would be impacted. The central bank's Intervention is imperative to keep the value of dollar at a reasonable level to avoid inflationary pressures in the local market, he cited.

However, a rise in the value of dollar helps boost both export and remittance inflow. The sudden appreciation of dollar fuels fears that traders and entrepreneurs involved in imported consumer goods, capital equipment and industrial raw materials will suffer financially, and ultimately customers will take the plight, reads the letter.

jasimharoon@yahoo.com
 

Destranator

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Stability (neither appreciation nor depreciation) of exchange rate is key as movements in either direction hurt the economy in various ways. Some people believe in the incorrect notion that depreciation helps exporters - it does not. Currency depriciation makes imported raw materials more costly and causes labour unrest due to rising inflation.

Bangladesh Bank generally does a good job at absorbing exchange rate shocks by buying and selling dollars to local banks.
They need to release more dollars to arrest the current depriciation.
 

bluesky

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The BDT-dollar exchange rate in banks was recorded between Tk 86.20 and Tk 89.50 in Chattogram, according to the Chattogram Chamber of Commerce and Industry (CCCI). But the inter-bank exchange rate as per the Bangladesh Bank (BB) was quoted Tk 85.6 last week.
The economic roots of currency depreciation are dependent on the productive capacity of an economy and the size of its money supply.

Another external type of reason maybe the shortage of dollars due to the repayment of borrowed foreign money by the govt.

I think all three factors are responsible for the Taka depreciation vis-a-vis US dollars this time. With more export dollars coming in, the depreciation may be wiped away.
 

Bilal9

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You can’t keep printing and expect it to not harm you.
an average of 13% yearly inflation last 10 years in bd.
Yeah inflation is way higher in Bangladesh than it should be. I understand daily consumables and groceries are almost getting out of people's affordability level in Bangladesh nowadays.

I'm no economist but look at how much India's PPP GDP per capita is compared to ours, their purchasing power is a lot higher despite having high inflation. I don't know if this is because of a much larger economy and a heightened economy of scale.

@bluesky bhai, @Destranator and @UKBengali bhai your opinions please...ei Mudrasphitir karon ki? Hopefully this is temporary corrective action due to covid supply chain problems.
 
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Yeah inflation is way higher in Bangladesh than it should be. I understand daily consumables and groceries are almost getting out of people's affordability level in Bangladesh nowadays.

I'm no economist but look at how much India's PPP GDP per capita is compared to ours, their purchasing power is a lot higher despite having high inflation. I don't know if this is because of a much larger economy and a heightened economy of scale.

@bluesky bhai, @Destranator and @UKBengali bhai your opinions please...ei Mudrasphitir karon ki? Hopefully this is temporary corrective action due to covid supply chain problems.
Inflation high in india? Cost of living (rent/ food/ transportation) seems much lower compared to bd. I’m surprised when my friends tell me their cost of living.
 

Bilal9

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Inflation high in india? Cost of living (rent/ food/ transportation) seems much lower compared to bd. I’m surprised when my friends tell me their cost of living.
For a long, looong time, salaries and incomes were very low in India because the rank exploitation by Banyas was/is super high, they had massive unemployment historically and they still do. As a result, Middle class and lower class Indians have found ways and means to live and survive very cheaply as far as housing, food habits and other aspects. Life in Bangladesh has no parallel to this. In Bangladesh we don't have Ph.D's working as bus conductors.

Indian FMCG products as a result are priced extremely cheap, and packaged cheaply too. For example, you can find a sachette of Shampoo for Rs.2 and sachette of toothpaste for the same amount. I find the "20% more" proclamation rather hilarious. 8-)

Even in the US, these Indian IT coolies are looking for these sachettes in Indian Grocery stores. Old habits die hard... :rofl:





Indians buy things in this sort of kanjoosi (cheapskate) packaging not to pack for going camping, but to live their daily lives in extreme frugal moderation. We in Bangladesh have not learnt this kanjoosi yet and hope we never do.

OTOH Indian upper class Brahmins, Kshatriyas and Banyas live a much easier life.

Bangladesh salaries are rather high compared to Indian salaries, that is why you see so many illegal Indians come in, to work in Bangladesh.
 
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bluesky

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Currently BD REER is 107.5 , so more taka Depreciation is needed to bring it on actual value
I am happy, the REER is only Tk107.5 to a US dollar. I fear it will go down to Tk120 to a dollar.

It is all because of printing money without the support of industrial production. Industries are just not there to support the value of Taka. Foreign exchange reserves are just not enough. Even this money is being proposed to be used to build fancy infrastructures that do not produce goods, but produce only a little service.

Heavy infrastructure, except metrorail and Karnafuli tunnel, could have waited until industries are built.

Taka will further depreciate as the country starts paying more dollars every year to the loan sharks including China and Russia. Atomic power station repayment probably has not started yet.

So, people should brace for Tk120 to a dollar. After all, we are the only country that believes a country can roar into development by just borrowing foreign money.

We are living in a Fools' Paradise.
 

bluesky

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Jebun Nesa Alo
07 July, 2020, 11:35 pm
Last modified: 08 July, 2020, 11:04 am

Bangladesh Bank finally sees scope for taka depreciation
The central bank’s realisation comes at a time when other competitive countries are ahead of Bangladesh in the exports race – having taken advantage of currency depreciation


Exporters have been demanding depreciation of the taka against the US dollar to stay competitive in the export market for a very long time.

Now, the Bangladesh Bank, which has been managing the depreciation pressure through artificial interference, is finally feeling the need for depreciation as well.
The rising Real Effective Exchange Rate (REER) index, along with depreciation by competing countries such as India and China, suggests further depreciation of the local currency in an orderly fashion, the Bangladesh Bank said in its financial stability report for 2019.

REER is a measure of the value of a currency against a weighted average of several foreign currencies – divided by a price deflator or index of costs.
An increase in REER implies that exports become more expensive and imports become cheaper; therefore, an increase indicates a loss in trade competitiveness.

The REER index registered a rise of 2.6 percent last year. "During the period [last year], the REER index experienced further appreciation, reflecting diminishing export competitiveness of the country," reads the stability report.

The central bank's realisation comes at a time when other competitive countries are ahead of Bangladesh in the exports race – having taken advantage of currency depreciation.

When competing countries – like India and China – experienced substantial depreciation of their currencies against the dollar last year, the Bangladeshi taka saw a 1.18 percent appreciation.

The Indian rupee depreciated by 2.56 percent against the US dollar last year, while China saw a 1.61 percent depreciation of its currency. Vietnam, a close competitor to Bangladesh which is already beating the country in apparel exports, saw a 0.01 percent appreciation of its currency last year.

Vietnam beat Bangladesh in apparel exports in the last five months of 2019. During this period, the Southeast Asian country fetched around $2 billion more than Bangladesh's $12.7 billion.

However, in the last calendar year, Bangladesh was marginally ahead of Vietnam in overall apparel exports. From January to December of 2019, Bangladesh's apparel industry earned $422 million more than that of Vietnam, enabling Bangladesh to retain its second position on the global market.

However, if the latest trend of decline in Bangladesh's apparel exports continues, the country may soon lose its position to Vietnam. Bangladesh and Vietnam have been holding second and third places, respectively, in apparel exports, over the past decade with a close margin.


The REER index for Bangladesh steadily declined during the first half of 2019, and reached 105.70 – the lowest point of the year. Thereafter, it started to rise and peaked at 111.66 in September before reaching 109.89 in December, according to Bangladesh Bank data.

"Appreciation of REER in the last two consecutive years might have led to lowering of the export competitiveness of the country," said the Bangladesh Bank.

The nominal exchange rate was mostly stable in 2019, even with a depreciation of 1.2 percent, according to the central bank report. The depreciations recorded in 2018 and 2017 were 1.6 percent and 4.8 percent, respectively.

Stability in the nominal exchange rate – the amount of domestic currency needed to purchase foreign currency – last year might be partly attributable to the central bank's support to the foreign exchange market, the stability report adds.

The maximum exchange rate was recorded at Tk84.90 per dollar in December 2019, while the minimum was Tk83.94 in January of that year. The difference between maximum and minimum taka per dollar was 0.96 last year, which was narrower compared to 1.08 in 2018 and 3.70 in 2017, according to Bangladesh Bank data.

Although Bangladesh's exchange rate is market-determined, it occasionally becomes necessary for the central bank to intervene in the foreign exchange market to maintain the stability in the nominal exchange rate, the report states.
In 2019, the central bank sold $1.62 billion compared to $2.37 billion in 2018, to support the foreign exchange market.

During the last year, the central bank did not purchase any dollars from the market. The extent of required intervention during the year was less than the preceding year, largely due to strong inflow of wage earners' remittances.

However, the size of the support by the Bangladesh Bank during 2019 reflects some pressure on the foreign exchange market from the demand side.

If the central bank stops giving directions and selling dollars, there will be two benefits, said Zahid Hussain, former lead economist of the World Bank's Dhaka office.

"Firstly, there will be a better alignment of the exchange rate, and it will benefit all the local businessmen who are competing on the export market. The government will not have to continue providing the cash subsidy then," he explained.

Secondly, he said, the dollars sold by the Bangladesh Bank leads to a deduction of the corresponding amount of taka from the banks' account with the central bank. As a result, their taka liquidity is reduced – inhibiting their ability to provide loans.

If the Bangladesh Bank stops selling dollars, this liquidity drainage will end, Zahid said. Market adjustment of the exchange rate will help all exporters, protect domestic import substitutes, and strengthen incentives for remittances, he added.
 

Cheepek

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For a long, looong time, salaries and incomes were very low in India because the rank exploitation by Banyas was/is super high, they had massive unemployment historically and they still do. As a result, Middle class and lower class Indians have found ways and means to live and survive very cheaply as far as housing, food habits and other aspects. Life in Bangladesh has no parallel to this. In Bangladesh we don't have Ph.D's working as bus conductors.

Indian FMCG products as a result are priced extremely cheap, and packaged cheaply too. For example, you can find a sachette of Shampoo for Rs.2 and sachette of toothpaste for the same amount. I find the "20% more" proclamation rather hilarious. 8-)

Even in the US, these Indian IT coolies are looking for these sachettes in Indian Grocery stores. Old habits die hard... :rofl:





Indians buy things in this sort of kanjoosi (cheapskate) packaging not to pack for going camping, but to live their daily lives in extreme frugal moderation. We in Bangladesh have not learnt this kanjoosi yet and hope we never do.

OTOH Indian upper class Brahmins, Kshatriyas and Banyas live a much easier life.

Bangladesh salaries are rather high compared to Indian salaries, that is why you see so many illegal Indians come in, to work in Bangladesh.

:meeting:
 

Bilal9

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:meeting:
Thank you for passing your habits on to us.
 

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