The central bank of Bangladesh has given a green signal to let the Bangladeshi Taka to float freely. The move, announced for the first time in the country’s history, comes as a response to receive more fund from the International Monetary Fund (IMF) in order to unlock more money from the $4.7 billion loan program.
Although Bangladesh is not overly indebted, it has joined a number of other nations in weakening their strict control over their national currencies in order to obtain loans from the Washington-based lender. This year, a number of countries have abandoned their fixed exchange rates, including Pakistan, Egypt, and Lebanon.
According to a statement released by the Bangladesh central bank on Sunday, "The new market-driven exchange rate regime will provide greater transparency and efficiency in foreign exchange transactions, benefiting businesses, individuals, and the economy." It also doesn't see any major depreciation of the taka, which has declined about 5 per cent this year."
On Monday, the taka, the currency of Bangladesh, plunged as much as 0.9 per cent to 108.86 per dollar. The broad index of Dhaka Stock Exchange increased 0.3 per cent, most since June 7.
Bangladesh has used a number of fixed currency rates since gaining its independence in 1971 to control volatility and keep imports affordable. By making the country's exports more appealing, a looser monetary policy might now assist Bangladesh in replenishing its reserves.
From July 1, the Bangladesh Bank will no longer offer discounted foreign exchange rates when dealing with the dollar or any other foreign currency. Instead, it will follow a uniform exchange rate regime.The central bank said that by the third quarter of 2023, all international transactions will be based on the new exchange rate structure and this will close the gap between formal and informal markets.
Due to a rise in foreign currency demand, the central bank has sold almost $13 billion worth of assets so far in the fiscal year that ends on June 30. According to Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage Ltd."said Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage Ltd. "Our analysis suggests that the exchange rate is showing less volatility as global commodity prices show signs of stability."
The first installment of the IMF loans, totaling $476 million, was given to the government in February. The second installment is scheduled to be paid out in November. The IMF, according to Prime Minister Sheikh Hasina, only provides "assistance to countries that can repay their bill." Sheikh Hasina claimed that her nation is in a position to pay back the loan that it received from the lender.
Last month, Moody's Investors Service lowered Bangladesh's ratings from Ba3 to B1, citing the country's "increased external vulnerability and liquidity risks" as the reason for the economy's decline. Because the nation hasn't issued sovereign bonds, the central bank has disregarded the measure, claiming it will have no impact.
