Dhaka, Bangladesh (BBN)– The Bangladesh Taka (BDT) has depreciated by 5.08 per cent against the US dollar in the just-concluded calendar year mainly due to higher demand for the greenback for settling import payment obligations.

The US dollar was quoted at BDT 82.70 in the inter-bank foreign exchange (forex) market on December 28, the last working day of 2017 against BDT 78.70 on December 29, 2016, the last working day of the year.

“Higher pressures for import of food grains particularly rice and wheat have been one of the major factors for depreciation of the local currency, to a marked extent, against the US dollar,” a senior official of the Bangladesh Bank (BB) explained.

He also said food-grain imports, particularly of rice and wheat, increased sharply by 158.55 per cent to $1.23 billion during the July-November period of the ongoing fiscal year (FY), amid local market overheating, from $477.74 million in the same period of the FY 17.

The import of petroleum products rose by 10.50 per cent to $1.12 billion during the period under review from $1.01 billion in the same period of the previous fiscal, he added.

The actual import in terms of settlement of LCs (letters of credit) grew by 8.25 per cent or $1.57 billion to $20.59 billion in the five months of the FY 18 from $19.02 billion in the same period of the previous fiscal, the BB data showed.

The exchange rate of the local currency vis-à-vis the greenback is primarily dependent on the demand for settling import payments as well as the availability of the latter from exports and inward remittances.

The supply of US dollar has decreased in the recent months mainly due to widening of the country’s overall external trade deficit along with a declining trend of inward remittances, the market operators explained.

The country’s overall trade deficit rose by nearly 109 per cent to $5.79 billion during the July-October period of FY 2017-18, from $2.77 billion in the same period of the previous fiscal.

Higher import payment obligations than export earnings pushed up the trade deficit significantly during the period in FY 18 compared to the same period of FY 17, they added.

On the other hand, the inflow of remittances fell by 0.53 per cent or $72.46 million to $13.54 billion in 2017 from $13.61 billion a year ago, the BB data showed.

Meanwhile, the country’s overall balance of payments (BoP) slid to a deficit of $225 million during the July-October period of the ongoing fiscal, which was in a healthy surplus of $2.04 billion in the same period of FY 17.
The BoP deficit was $360 million in the first quarter (Q1) of FY 18.

Talking to the BBN, a senior treasury official of a foreign bank said the ongoing BoP deficit indicates that there is a real shortfall of the greenback in Bangladesh.

He also said if the central bank does not desire further depreciation of the BDT against the greenback, it needs to take steps to ensure adequate supply of the US dollar in the market immediately.

The country’s forex reserve rose to $32.02 billion on Monday from $31.99 billion of the previous working day despite selling of the US$ by the central bank to the commercial banks.

The central bank directly sold $1.10 billion to the commercial banks from July 01, 2017 to January 08, 2018 as part of its ongoing foreign currency support.

“The central bank is selling the foreign currency to the banks to help settle the outstanding LCs against imports, particularly of fuel oils, food grains and capital machinery,” another BB official told the BBN in Dhaka.

He also said such liquidity support may continue in line with the market requirement.

The demand for the US currency is gradually increasing, mainly due to higher import payments pressure, particularly of consumer items, including food grains, petroleum products and capital machinery.