NN Online:
The Bangladesh Bank (BB) has increased the crawling peg rate from Tk 117 to Tk 119, aiming to stabilise the dollar exchange rate and address currency management challenges.
According to the central bank, an additional 2.5 per cent may be applied when purchasing foreign remittances, while banks are permitted to add another 1 per cent as profit during sales.
Strict regulatory instructions have been issued to ensure that these limits are not exceeded, officials said. Economists, however, remain sceptical of the effectiveness of this measure in stabilising the dollar market.
Dr Mashrur Reza, chairman Policy Exchange Bangladesh (PEB) and former economist at IFC, a concern of the World Bank, told UNB that it is never possible to stabilise the dollar market if the dollar price is determined this way.
He suggested fixing the exchange rate based on competitive market demand to bring stability in foreign exchange.
He also emphasised central bank monitoring on illegal dollar trading and large amounts of dollars smuggling in the guise of individual travel abroad.
Besides, over invoice to import goods is to be checked to bring stability in the domestic foreign exchange market, he pointed out.
Economists argue that maintaining the dollar’s value in this manner may not yield the desired results, citing past government failures in controlling the exchange rate. Over time, the dollar’s value has surged from Tk 84 to Tk 123 due to continued increases.
Despite these challenges, the central bank has persisted with its regulatory approach to determine the exchange rate.
Introduction of crawling peg system
On May 8, the central bank introduced the crawling peg system for determining the dollar’s price.
At that time, the official exchange rate was raised sharply, from Tk 110 to Tk 117 in a single day. Under the crawling peg system, the dollar’s price is allowed to fluctuate within a predefined range, taking various economic factors into account.
Central bank officials explained that this system prevents sudden and significant fluctuations in the dollar’s value by setting an intermediate limit rather than strict upper and lower thresholds. Banks have been instructed to adhere closely to these rates in all dollar transactions.
Reserve growth supported by expatriate income
Meanwhile, the central bank’s foreign exchange reserves have seen an uptick, largely due to robust inflows of remittances from expatriates. As of last Sunday, reserves stood at $26.1 billion.
However, using the International Monetary Fund’s (IMF) BPM6 calculation method, the reserves are reported at $21.34 billion.
This marks a significant improvement, with the reserves surpassing $20 billion according to the BPM6 methodology for the first time in a considerable period. The Bangladesh Bank’s regulatory approach continues to face scrutiny from experts.
While the crawling peg system offers a controlled framework for exchange rate management, its ability to address underlying economic pressures and stabilise the dollar market remains uncertain.
