A bank is now paying at least Tk118 to purchase a US dollar from another bank as the rate reaches the highest level since 8 May when Bangladesh Bank relaxed control on foreign currency transactions.
The dollar rate hit Tk118 on Thursday, rising by Tk0.5 in 24 hours, as per central bank data.
The dollar rate has been rising gradually since 8 May, amid strong demand and willingness among traders to use official channels instead of undocumented ones.
The mid-range crawling peg allows banks and money exchanges to set dollar prices around a fixed rate. Bangladesh Bank has fixed Tk117 as the middle point of a limited-scale range within which fluctuations can be tolerated, but the central bank is likely to lower the mid-point amid continued weakening of taka against dollar.
Before 8 May, the central bank changed dollar prices periodically to keep up with global forex dynamics, but it was still too restrictive – thereby encouraging trading below the central bank’s radar at different parallel rates.
Banks on the preceding day bought each US dollar for Tk 117.95, according to data from the Bangladesh Bank (BB).
“This reflects a shortage of the greenback in the market. But the positive development is that market demand and supply are determining the price,” said a top banker who works at a private bank.
The BB introduced crawling peg on May 8, allowing for limited fluctuations of the exchange rate within a predefined range. As such, it shifted away from its previous practice under which banks announced rates of the greenback periodically.
The central bank move aims to contain the volatility in the forex market amid declining reserves.
The central bank launched the crawling peg for the spot purchase and sale of the US dollar with the mid-rate at Tk 117 per dollar and asked banks to buy and sell the American currency freely around the mid-rate.
Purchases started to be made at Tk 116.46 on the first day after the launch of the crawling peg system.
The sales rate in the interbank transactions was Tk 117.5 per US dollar. Since then, the volatility in the forex market reduced but the taka weakened against the greenback steadily.
On May 30, the buying and selling rate was Tk 117.50 and Tk 117.90, respectively. The greenback further gained ground this month.
“It indicates there is a higher demand for the greenback. This is also a signal that the local currency is weakening,” said a senior official of another private bank.
He expects that the central bank may review the crawling peg mid-rate in the face of the gradual weakening of the taka, which has lost its value by 35 percent in the past two years.
Bankers, however, said documented transactions are taking place following the introduction of the crawling peg. It, thus, reduces the scope for undocumented transactions and informal exchange rates.
“It is a positive development,” said another banker.
