Taka Is On Free Fall Again

Expansionary measures and less commitment on aid Maybe the cause for depreciation great.

Head of interim govt in a televised address hinted the possible timing of next general election,which will be held between December 1,2025 and June 30,2026. The much awaited announcement will definitely give a positive signal to the economy by ending the uncertainty about the interim govt. However, BNP is not happy with the announcement as it is expecting roadmap of the election.

Luckily, edible oil prices in the international market register a fall. It will contribute positively to bring down the inflation. However, USD is being sold at Tk 127 at some exchange houses and banks since govt instructed all banks to clear all international dues by December. Govt is also ready to swell forex reserve to get the next instalment of the IMF credit package. Govt also reintroduced a regulation that slaps 20% tax on interest payment on foreign loan in a bid to discourage private borrowing from abroad and augment its revenue earning. Despite the assurance of bankers that the high prices of USD are temporary, dollar rate may depreciate instead of appreciating. Why? The IMF revised its inflation forecast to 11% for 2025. It also lowered GDP growth forecast to 3.8%. Central bank needs several hikes in policy rate to surpass the inflation. Under the policy of gradualism, it takes time to raise the policy rate. So for a good amount of time inflation will remain elevated unless govt drastically addresses the issue,which is highly unlikely because of increasing strain on businesses for credit on working capital and on consumers for paying housing credits or consumer credits. The IMF also expressed concerns over liquidity support worth of Tk 220 billion to trouble ridden banks as it may aggravate the inflationary pressure.

Govt is also not prepared for restoring the law and order, prerequisite for improving business environment at home.Moreover, Trump administration's tough stance on foreign aid and downgrading of Bangladesh's credit ratings will make foreign credit and assistance more costly. Despite the higher pace of remittance inflow,market is not convinced that USD inflow will surpass the USD outflow.

The IMF also revised the revenue target to Tk 4.55 trillion from Tk 4.8 trillion. For the rest of the remaining fiscal year, govt will be desperate to attain the target. So, govt's fiscal and monetary expansions amid contractionary policy,lack of revenue, less prospect for foreign credit and poor law & order condition are contributing to Taka's depreciation.