Year 1998 started with concerns for further of downward adjustment of taka against US dollar on the aftermath of Asian crisis. Bangladesh Taka was adjusted downward against US dollar by Ik 3.50 (6.71%) In three phases during the year.

48.35/48.65 45.30/45.60 42.35/42.55 40.65/40.85 40.15/40.35

The first downward adjustment of taka took place in February when it was adjusted downward by 85 paisa which was followed by a further depreciation in July by 80 paisa or 1.72 per cent. Witliin three months, in October Bangladesh Bank for the third time adjusted taka downward by 1.40 or about 3% — the single largest downward adjustment since 1982. This year, corporate became increasingly aware about addressing their foreign currency risks, and forward cover gained popularity as a measure to hedge the risks.

Demand for dollar wag fairly high in 1998 due to Import payments and other outward remittances. In September, the - -worst flood in Bangladesh also took a toll on the foreign exchange market and as a result dollar demand reached it's peak. In September, the government decided to import 300.000 metric tons of rice and 100,000 metric tons of wheat in addition to the annual import of foodgrains. In the middle of September, L/Cs worth of BDT 10 billion were said to have been opened. This heavy import by the government and the private sector pushed the demand for dollar high. In the third quarter the government declared floation of forex bonds in US dollar and British pound for non-resident Bangladeshis. In the fourth quarter of the year, the high demand for dollar persisted due to import payments and Increased interest for hedging currency

The year ended with central bank's USD/BDT rate settling down at 48.35/65 and average interbank rate at 48.65/48.6520. The closing rate for cash US dollar notes in the secondary market ranged between BDT 48.60 to 48.80.

Money Market

Significant developments marked the year for the money market. From the third quarter Bangladesh Bank decided to accept Treasury Bills in tenors of multiple of seven days (7 days. 28 days. 91 days etc). This decision diminished the gap between . Treasury bill maturity and payment and as a result the volatility which was caused by this gap between payment and maturity reduced the fluctuation in the call rate. The government also started accepting Treasury Bills-of longer term tenors of 2 years and 5 years from this year. As of December 31. 1998. following Treasury bills were outstanding.

Bangladesh Bank has also changed the procedure of calculating Cash Reserve Ratio (CRR) and Statutory Liquidity Requirement (SLR) from weekly basis to monthly basis.

The call money rate soared to 15-20 per cent ahead of the Eid ul Fitr (during the first quarter) due to huge deposit withdrawals by the, government bodies and retail clients. Some of the nationalized banks (lenders) refrained from lending despite being surplus in funds also attributed to the rate hike. In the last quarter, the call money market remained in an insipid state. Despite the devastating flood, government borrowing did not increase as was expected by the money market players. The government was successful in matching its post flood rehabilitation expenditure with the inflow of aid — as a result the money market remained sluggish. In 1998, monthly average of call money rate ranged between 6.5 to 12.20 per cent.

International currency market

Year 1998 started with the perpetuation of South Asia Currency crisis. It affected Japanese economy most due to its dependence on South Asian economies. Japanese economy's dismal situation Including its financial sector indiscipline also Kabbed yen by scuff of the neck. European currencies suffered the fear that European interest rates might be kept low to prevent a worldwide recession, too. A political and a debt crisis in Russia heavily affected DEM because of German business involvement in Russia. US dollar was mainly affected by Clinton's impeachment possibilities and expectation of slowing down of US economy later in 1998. A domino effect of Russian debt crisis in Latin America also pulled down US dollar. European Economic and Momentary Union (EMU) did not influence the European Currencies as it was expected.

USD and yen was the most volatile currency pair of the year. During 1998, USD moved by 32.37 per cent against yen with a high of 147.63 and low of 111.53 yen. Upto the 3rd quarter USD was on a gaining trend against yen. But in the 4th quarter, market experienced a landslide in USD without any comprehensible fundamental reason. In the first week of October. USD was slumped by 22.75 per cent (from 136.90 to 111.53 yen level.) Nonetheless USD ended the year soothing its wounds around 113 yen level.

Against DEM. USD moved by 16.82 per cent with a high of 1.8562 and low of 1.5870. Earlier in the year, DEM was weaker due to strong US economy, uncertainty around EMU and political crisis in Russia. But USD's rise was forestalled by Iraq crisis and Bill Clinton's moral away. As the year progressed and launching of EMU approached, DEM got stronger on back of perception of slowing down of US economy and better prospect of EMU.

During the first half of 1998. GBP was mainly moved by interest rate factor. For the first 2 quarters GBP was more or less stable as there were no significant factors. However, in the 3rd quarter. GBP posted its lowest for the year at 1.6078 on the perception of slowing down of UK economy. GBP posted its year high during the 4th quarter on concern for possibility of impeachment of Clinton. It. however, ended the year around 1.66 level.

— Standard Chart