Economy
Dollar Exchange Rate for Repatriated Export Income Surge to Tk107.5
The Bangladesh Foreign Exchange Dealers Association (BAFEDA) and Association of Bankers Bangladesh (ABB) have increased the exchange rate of the US dollar for repatriated export income by Tk 0.5, bringing it to Tk 107.5 per dollar. This decision was made during a meeting held on Monday, where top bank executives involved in foreign exchange transactions gathered. Since September 2022, a joint committee comprising BAFEDA and ABB has been responsible for determining the exchange rate between the taka and the US dollar, which is the world’s reserve currency. Although the intention was to establish a floating exchange rate, the system has not operated as planned.
Economists have criticized the existence of multiple exchange rates and have advocated for a single, unified exchange rate. However, the BAFEDA-ABB committee has yet to address this demand. Following the recent announcement, exporters will receive Tk 107.5 in local currency for each dollar earned through exports. In contrast, the exchange rate for expatriate income (remittances) remains unchanged at Tk 108.5. Additionally, the maximum interbank rate will continue to be Tk 109 per US dollar.
The country has been facing a dollar crisis since March of the previous year, primarily triggered by the Russia-Ukraine conflict. In an attempt to tackle the crisis, Bangladesh Bank initially fixed the exchange rate. However, this approach exacerbated the situation. In September of last year, Bangladesh Bank officially relinquished its responsibility for determining the exchange rate, transferring it to ABB and BAFEDA in consultation with the central bank. Since then, these two organizations have been collaboratively determining the dollar price for export and repatriation income, as well as import liabilities. Essentially, they are implementing decisions made by Bangladesh Bank.
The adjustment in the exchange rate for repatriated export income reflects ongoing efforts to address the dollar crisis in Bangladesh. The decision made by BAFEDA and ABB will impact exporters, who will now receive Tk 107.5 for each dollar earned through exports. While the move towards a floating exchange rate has encountered challenges, economists continue to advocate for a single, unified exchange rate to promote stability and transparency in foreign exchange transactions. The joint committee comprising BAFEDA and ABB plays a pivotal role in determining the exchange rate, working closely with Bangladesh Bank to address the complex dynamics of the country’s foreign exchange market.
The Dhaka Stock Exchange (DSE) and the DSE Brokers Association (DBA) have expressed gratitude towards Prime Minister Sheikh Hasina for her directive to list government companies in the capital market, a move hailed as timely and positive.
The directive was issued during the recent meeting of the Executive Committee of the National Economic Council (Ecnec) last Thursday.
Dr. Hafiz Muhammad Hasan Babu, Chairman of DSE, described the directive as a significant step towards enhancing the dynamics of the capital market. He emphasized that besides invigorating the capital market, this move would also attract foreign investment and promote sustainable development.
Despite previous efforts, government institutions had not been listed in the stock exchange, according to a notification issued by the DSE. The Prime Minister’s directive is seen as a pivotal step towards revitalizing and expanding the economy.
Dr. Babu further remarked, “The listing of reputable companies in the capital market, as directed by the Prime Minister, will greatly benefit the country’s economy. It will also enhance investor confidence.”
Similarly, the DBA released a notification applauding the Prime Minister’s directive, terming it as positive and timely for the capital market.
Saiful Islam, President of DBA, expressed optimism about the directive’s potential to accelerate the country’s capital market and overall economy. He pledged support to relevant government departments and regulatory bodies in implementing the directive, ensuring its positive impact on the economy, including the capital market.
India has expressed interest in financing Bangladesh’s Teesta project, announced Foreign Minister Hasan Mahmud. Speaking to reporters after a meeting with Indian Foreign Secretary Vinay Mohan Kwatra, Mahmud stressed the importance of aligning the project with Bangladesh’s needs. He confirmed discussions on the Teesta issue during the meeting. Mahmud also affirmed Prime Minister Sheikh Hasina’s upcoming visit to New Delhi, indicating that the finalization of the date would depend on the formation of the new Indian government following ongoing elections.
Meanwhile, the IMF has approved a $1.15 billion staff-level loan for Bangladesh in its third tranche. Mahmud noted the ongoing elections in India and the subsequent formation of the new government as factors influencing the scheduling of PM Hasina’s visit.
When asked about the sequence of visits to India and China, Mahmud suggested Delhi’s geographical proximity to Bangladesh. Diplomatic sources suggest PM Hasina’s visit to India is planned for early July, following India’s elections.
Pre-election surveys indicate strong prospects for Indian Prime Minister Narendra Modi’s re-election. Modi previously congratulated PM Hasina on her electoral victory in January, expressing optimism about strengthening ties between the two nations.
The last bilateral engagement between the prime ministers occurred during the G-20 Leaders Summit in September 2023. Modi is expected to invite South Asian and BIMSTEC leaders to his swearing-in ceremony, fostering regional cooperation.
Addressing border killings, Mahmud emphasized the government’s commitment to ending such incidents and promoting the use of non-lethal weapons by border forces. Discussions also covered enhancing physical and people-to-people connectivity, including cooperation with India to import hydropower from Nepal and Bhutan through India. Mahmud highlighted the need to further ease visa restrictions to strengthen people-to-people relations.
The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.
Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.
This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.
Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.
The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.
On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.
He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.
Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.
Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.
