The dollar's hot streak is something we've been keeping an eye on for months now, and so news that the greenback hit the three-figure mark against taka on the open market this week wasn't quite the shock it seems to have been for the majority of the media. As is almost inevitable these days, the possibility of a debacle a la our good neighbours Sri Lanka has been mooted. Coming on the back of a very real cost of living crisis that has now set in for large parts of the population, it could only be perceived as yet another blow.
It's true, it has come at the worst possible time, thanks to the intransigence in the central bank, and our increasing energy imports make it a daunting prospect. The real rub lies in the yawning gap that it meant had opened up, between the official Bangladesh Bank rate, and rates being touched, and crossed in the kerb market.
Economists have long advised a devaluation of taka is inevitable, even within the managed or dirty float system the country has maintained in its exchange rate policy since the early 2000s. Given that Bangladesh Bank retains a lever of control, we have the option of easing it in.
But Shapla Chattor on Monday (16 May) devalued the taka against the US dollar for the third time in two months, with the rate for interbank transactions revised to Tk87.5, up by Tk0.80 on the day - the highest single-day devaluation of taka in the country's history. Such milestones in a sensitive phase for the economy cannot be welcome. It was enough to push the rate shooting past the century mark on the kerb market - unwanted milestone upon unwanted milestone.
Now although the currency climbed back down off the peak by the end of the week, the days of Tk 100 to the dollar obtain a sense of inevitability, and that is not a good look for any government coming up to an election year, unless it is able to sell it. To make the case there is to be made for devaluing taka, for it should not be without its gains as well, provided they can now be facilitated.
Of course we shouldn't pretend it was all in our hands in the first place. Amid all the mixed signals in the world economy at present, one thing most analysts agree on is that this is a very bullish time for the dollar. It is said to be pushing the world economy into a 'synchronised slowdown' by driving up borrowing costs and stoking financial-market volatility. Bloomberg, the authoritative source on matters of finance, called it 'the hideous strength of the dollar'. The US Federal Reserve has adopted an increasingly aggressive approach to monetary policy as it tackles inflation that is soaring at its fastest pace in 40 years.
A rising currency should help 'the Fed' cool prices in the US - our RMG industry is already reaping the results - and support American demand for goods from abroad. But it also has the effect of driving up import bills for countries dependent on imports, such as ours, further fueling their inflation rates. The bad news is, we may have to bear this brunt for a while yet. At the moment, no one expects the dollar's hot streak to end anytime soon.
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