Economists suggest more depreciation of local currency

The local currency Bangladesh Taka (Tk) depreciated by nearly 1.5 per cent to Tk 83.90 against the US Dollar (US$) in the year 2018 as a result of widening deficit in the country's overall balance of payments (BoP).

But economists opined that the erosion in the value of Taka should have been much higher to help maintain the country's competitiveness in the external market.

Besides, the currencies of Bangladesh's rivals in global trade, including India, weakened at much higher rates, they added.

The inter-bank Taka-US$ exchange rate was Tk 82.70 on December 26, 2017, which stood at Tk 83.90, up by Tk 1.20, on December 26, 2018.

The "kerb" market exchange rate was Tk 85.15 in the city, as of Wednesday (Jan 2, 2019).

In the meantime, the central bank had sold US$ 1.1 billion to the banks during the last six months (July-December 2018) to manage the exchange rate, and kept it at Tk 83.90.

Dr Zahid Hussain, lead economist at the World Bank (WB) Dhaka office, told the FE that the country's external business is losing competitiveness following depreciation of Taka at lower rate.

"Almost all the competing countries -- China, India, Vietnam, Cambodia and Pakistan -- have weakened their currencies to remain competitive in the global market," he added.

The value of India's currency, Rupee, declined by 12 per cent during first eight months of 2018. India is the second largest trade partner of Bangladesh after China.

China's currency declined to its lowest level in a decade in last September against the backdrop of mounting geopolitical tension along with uncertainty over the country's trade impasse with the US.

The Chinese Renminbi or RMB fell to 6.857 against the dollar, according to Bloomberg data on January 02. Its maximum average during the last 180 days was 6.9754.

Dr Hussain said in comparison with the currencies of Bangladesh's competing nations, Taka did not slip that much.

Bangladesh's overall BoP posted $885 million deficit during the last fiscal year (FY), 2017-18, compared with a surplus of $3.2 billion in FY 2016-17.

It happened for the first time in seven years, driven by wider current account deficit. The last time the overall balance was in the negative ($676 million) in FY 2010-11.

The weakening of the local currency has an implication on the country's external debt perspective also. However, the depreciation is helping the export receipts and remittances, which remained in the positive territory in the recent months.

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