How do we stabilise forex market?

None in Bangladesh seems to be happy with the present foreign exchange rate and the liquidity situation.

Exporters think they are not getting a good rate against their exports as they receive Tk 110 per US dollar. An importer is happy to pay even Tk 115-116 for their import settlements. A patient going to India for treatments was frantically looking for cash USD even at Tk 118 last Thursday.

I asked a few treasury dealers: What should be the USD-Tk level if we want to improve liquidity in the market?

Most of them said in order to mobilise more remittances and improve liquidity, the exchange rate should be Tk 120-125 in the coming days.

One of our stable sources of foreign currency earnings, remittance from non-resident workers has been on a slide for a long despite a marked rise in the outflow of overseas job-seekers. In 2022, more than 1.1 million workers, the highest ever from the country, went abroad, most of them to the Gulf countries.

But the money they sent through the official channel dropped to $21.28 billion from $22 billion a year ago, marking a 6.65 percent year-on-year decline. The fall continued in 2023, with September recording the lowest receipts at $1.34 billion in 41 months. It was also 13 percent lower year-on-year.

As expected, the forex reserves, which have already been severely strained, received yet another blow.

Receipts from exports, too, fell short of meeting the monthly target, posting the lowest earnings in three months. However, it rose 10.4 percent year-on-year to $4.3 billion in September.

Such a gain compared to the past could be meaningful if exporters are not waiting in the hope of a further rise in the dollar rate before bringing back the funds from abroad. Most believe that given the fall in consumer demand overseas, the comparative year-on-year gain in exports may not be sustainable.

Media reported that the country’s forex reserves stood at $21.5 billion at the end of last month though some thought the net reserve to be at less than $18 billion. According to Fitch, the reserves will dip further by the end of 2023 and will be able to cover only three months’ imports.

Clearly, these are the warnings for our central bank in the coming months and ahead of the national polls. Hopefully, the regulatory agency will go for the drastic policy changes it has been promising since last year to meet the challenges of fast-depleting forex reserves, the persistent depreciation of the taka, and the resulting upward push to inflation.

In this context, the present policy of raising the exchange rate from time to time by Tk 0.50 or Tk 1 per US dollar, experts hold, is proving counterproductive as it is only fueling expectations in the market. Most opined the central bank should opt for the market-based exchange rate as it promised last July during a monetary policy announcement.

Many feel urgent measures must be in place to narrow down the existing exchange rate gap between formal and informal markets.

The current official rate of the greenback as determined by the Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers, Bangladesh (ABB) with the unofficial backing of the central bank is still Tk 8 lower than the rates being offered by hundi operators.

No good words even with the 2.5 percent incentive are going to work if remitters get 7.5 percent extra for every dollar they send home. In addition, nothing short of a full-blown war on hundi operators, including a constant watch on some financial institutions suspected of facilitating capital flight, is overdue.

The author is an economic analyst