Stick To Adjustment

Pursue crawling peg and fuel price adjustment, For early economic settlement.

According to a news report, exchange rate of Taka against USD in settling LCs reached Tk125/USD. Bankers fear it may increase inflation slightly(See "LC Settlement Dollar Rate Reaches Taka 125", Tonmoy Modok, The Business Standard,December 13,2024.Link: https://www.tbsnews.net/economy/lc-settlement-dollar-rate-reaches-tk125-demand-rises-1017321). Earlier, the visiting IMF team expressed dismay over not pursuing the crawling peg diligently as the exchange rate pegged at the official rate for more than 3 months and the gap between official rate and unofficial reached more than Taka 2.

I do not know why the govt is bothering about the pass through effect so much when the policy rate is on the rise,holding back unnecessary imports and domestic spending. Seasonal vegetables keep entering the market,registering a downward pressure on price levels. Moreover, remittances are keep coming as confidence on govt is back. Law enforcement is still weak but gradually comes into some kind of shape.

Not only the crawling peg, govt is not following the monthly fuel price adjustment. The two practices are good for monitoring the cost of living.

Even if crawling peg depreciates Taka by 2%, it will have no major impact. Why? Currencies of our trading partners are weak. Both the Rupee and Yuan witness significant depreciation. That means import from these countries will be cheaper.And Chinese policy rate is set to be lowers ahead of a potential trade war. This is also helping Bangladeshi importers to import from China in Chinese currency. In addition, Trump administration is in no mood to raise the Fed policy rate to make the domestic investors content. The US consumer spending will go up and investment will flow to Saudi mega projects that will recruit more foreign workers,further boosting remittances. If much needed trade war will come into effect, it will be a good news for global consumers as major kitchen commodities' prices will see large decline.

The OPEC+ coalition decided to up the oil production from April next year. It will further lower fuel prices. So the remaining months of this fiscal year sets the context for containing the inflation. In this backdrop, I do not think depreciation of Taka to Tk 125/USD would cause a lot of trouble. Rather it will boost the remittances and bring more export orders from abroad.