The dollar rate on the open market, also called as kerb market, saw a sharp rise on Thursday, with the rate rising by Tk 7 a dollar to reach Tk 125 a dollar following the Bangladesh Bank’s decision to raise the official rate of the greenback to Tk 117 in the previous day.
However, many struggled to acquire the desired amount of dollars on the open market, as sellers were not releasing dollars anticipating that the rate might increase more in the coming days.
Bankers, money changers and businesses were shocked after the sudden announcement of such a significant dollar price hike.
Alongside the open market rate, the rate for opening letters of credit also rose by Tk 2.5-Tk 3, as banks are now charging Tk 117.5-Tk 118 for the purpose against about Tk 115 in the previous day.
Money exchange house officials said that their dollar rates were typically higher than those of banks.
They said that the dollar rate was Tk 117-Tk 118 Wednesday morning, but after the central bank announced the dollar rate hike, the rate increased to Tk 119 on Wednesday evening and further surged to Tk 125 on Thursday.
On Thursday, the Bangladesh Bank declared weighted average interbank dollar rate Tk 117.36 each.
In a circular on Wednesday, the Bangladesh Bank significantly devalued the local currency taka to Tk 117 against each US dollar as it introduced the Crawling Peg Exchange Rate System for buying and selling dollars.
According to the circular, under this system, a Crawling Peg Mid-Rate has been set at Tk 117 a US dollar with immediate effect.
‘Scheduled banks may purchase and sell US dollars freely around the CPMR with their customers and in interbank deals,’ it said.
BB officials said that a maximum of Tk 1 could be added to or deducted from the mid-price of Tk 117.
Previously, the official dollar rate, which was set by the Bangladesh Foreign Exchange Dealers Association and the Association of Bankers, Bangladesh, was Tk 110 each.
However, banks were trading dollars at Tk 115–116 each, while the rate was about Tk 118 on the open market.
The exchange rate was Tk 94.7 in July 2022 and Tk 84.8 in July 2021, which means that the taka was devalued by 40 per cent in just three years.
As a condition for a $4.7 billion loan to Bangladesh, the International Monetary Fund had advised setting the exchange rate of the foreign currency at a flexible rate.
The IMF suggested that Bangladesh Bank follow a market-based approach to determining the exchange rate.
The impact of the sharp rise in the dollar rate has been felt across various sectors of the economy, with businesses facing higher import costs and challenges to source foreign currency.
The higher import costs are often passed on to consumers in the form of higher prices for goods and services, which economists fear can erode their purchasing power and reduce consumer spending.
Bangladesh, like many other countries, has foreign debt denominated in US dollars. As the taka depreciates, it will take more taka to repay the same amount of foreign debts in dollars.
The country’s external debts crossed $100 billion in December 2023.
The ongoing dollar crisis is attributed to various factors, including a significant gap between supply of and demand for dollars in the country.
The depletion of foreign exchange reserves, poor inflows of remittances, and low export earnings are contributing to the imbalance in the foreign exchange market.
The dominance of the informal ‘hundi’ market, where unofficial currency trading occurs, also plays a role in exacerbating the crisis, according to economists.
The foreign currency reserves, according to International Monetary Fund guidelines, dropped to $19.82 billion on May 8.
