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Unease about motive speculative |
The short relief of tariff debate between the USA and the China reached with a reduction in tariff for 90 days. During this time, the USA will charge 30% tariff on Chinese goods [whereas] the China will levy 10% tariff on American goods. This relief will give both the countries ample time to chalkout a contingency plan. It is indeed a good news for Bangladesh since the decision has strengthened the USD against major currencies, steering a depreciation pressure on Taka. Bangladesh has mid July to ink a deal with the USA about reciprocal tariff. It has another 90 days to depreciate its currency when it has the just cause for depreciation. In the international exchange market Taka has already depreciated to 121.50/USD from 121.42/USD in past one week. Official exchange rate has not changed though.
There has been great reluctance from the side of govt to go for market based exchange rate. The fear is that speculators and international exchange houses may further depreciate Taka. Earlier Dubai and Jedda based exchange houses had been found in such malpractices. Govt even asked for another $1 billion from the IMF to implement the fully market based exchange rate instead of the prevailing crawling peg system. The market does not signal that Taka will be same as the Sri Lankan or Pakistani Rupee. Rather it says Taka is 121.50/USD. Back in December, we saw major volatility in the exchange rate of Taka due to settlement of international bills and speculators' activity at home ahead of policy rate hike in Monetary Policy Statement. Speculation concerns mostly arise from home and major trading partner countries. Speculation motives at home greatly reduced after the correct alignment between policy rate and inflation rate. For the next 90 days, it will be further reduced as US dollar will remain strong against other currencies. Property purchase in the UAE and money laundering fuelled the speculation motive in the UAE and Saudi Arabia. Bangladesh is no great trading nation whose currency will be great value to others. Speculation from abroad is also minuscule at this time as there is no reason for [speculation]. Moreover, international market rate does not say so. What would one do with stockpiling so much of Taka? Ultimately, Bangladesh Bank is the sole institution that in the end [has to] deal with it. At the end of the day[,] it is indeed a loss making project. I do not think it is a wise move not to let Taka align with the market completely. We do not have enough opportunity to depreciate Taka in the future. Because the USA wants a world where the US dollar will remain weak,leading to appreciation of other currencies. Command and control economies like China and Vietnam can depreciate their currencies through state intervention. We cannot do so easily. But I support Bangladesh's position of seeking extra $1 billion from the IMF to cushion any adverse effects from free floating of Taka.
This depreciation pressure comes at a moment when tariff debate will lower global demand,showing a downward pressure on prices of fuel. Inflationary pressure will be largely offset by this lower demand for major commodities. Moreover, such depreciation will augment revenue collection that the government is desperately seeking. 10% depreciation will make exchange rate Taka 134.2/USD ,5% will make it Taka 128.1/USD and 2% will end up in Taka 124.44/USD. Next week we may see a strong US dollar and it will be the right time to depreciate the Taka further.
$25 billion remittances in 10 months reflect earlier depreciation of Taka. Moreover, it helped bringing back export earnings in time. Since Taka is not a major trading currency, speculative tendencies should not cause a lot of concerns for not letting Taka free float. Speculative motive at home and in the countries with Bangladeshi diaspora is negligible since the market conditions dictate so. Why should government be so worry about introducing market based exchange rate?
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