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Some Asia economies may need rapid rate hikes to cool inflation: IMF

July 29, 2022 10:39 am
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Dhaka Bureau :- Some banks are not releasing the US dollars, forcing other banks to buy the greenback from money changers and the haggling is making the foreign currency costlier against the taka, according to the president of the Association of Bankers, Bangladesh or ABB.

Speaking to reporters in Dhaka on Thursday, Selim RF Hussain, chief of the association and CEO of BRAC Bank, called for measures to make the interbank US dollar market dynamic, alleging that some banks were taking advantage of the situation.

“Some banks are not releasing dollars. So the market needs to be activated. If we do so, the dollar price in banks may rise for some days,” he said, declining to comment on his prediction of how much the price may increase. “It will stabilise after 10 to 15 days.”

“In the absence of an interbank market, the dollars are coming from the exchangers, especially a handful of big ones,” he said.

“They’re raising the dollar price through bargaining. Many small banks have to buy US dollars from the exchangers as they don’t have other sources. Now the exchangers are making a huge profit. Some speculate that market players are behind this trend. I also believe so.”

“Some quarters are doing business by destabilising the market. This always happens in an open market economy.”

Selim also believes allowing the dollar-taka exchange rate to float freely will not work in Bangladesh. He thinks some controls are required to keep the dollar price down.

Bangladesh adopted a floating exchange rate system in 2003 to effectively integrate with the global market.

However, the central bank imposed tight controls on the dollar exchange rate due to the massive depletion of the greenback it has in its coffers.

In mid-May, the price of the US dollar rose to Tk 102 in the kerb market. In the following two months, the dollar supply in the market increased, mostly by the Bangladesh Bank, and the rate was somewhat stable, fluctuating between Tk 97-98.

Finally, the central bank reintroduced the floating exchange rate system in early June as part of efforts to stop the rapid devaluation of the taka and save its foreign currency reserves, but the taka’s fall has continued with no sign of stopping due to the volatility in the international market amid the Russia-Ukraine war.

On Wednesday, the interbank and open market rates of dollar-taka exchange came to parity at Tk 109 per dollar, a day after it hit record Tk 111 in the kerb market.

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