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No reason to devaluate taka: Experts

Sajjadur Rahman
In the last two years the taka has become one of the strongest currencies in South Asia, mainly riding on the falling demand for the currency and lower import prices.
But exporters are concerned with the local currency's valuation although the country is benefiting from the lower import costs.
They say when the taka rises against the dollar, Bangladesh's exports become more expensive than their competitors such as India, Vietnam and Pakistan.
But experts are of different views with the exporters.
“Export value is not going down for a strong local currency,” said Shahjahan Bhuiyan, managing directorofUnited Commercial Bank.
Bhuiyan has vast experience in dealing with foreign exchange market in his 30 years in the banking sector.
He said a significant decline in prices of commodities has caused for a surplus of dollar in the local market.
According to central bank data, the taka has moved from Tk 72 in March 2006 to Tk 68.92 in January 2009 against the US dollar.
Bangladesh adopted a floating exchange rate on May 31, 2003 to avoid the overvaluation of the domestic currency. Such overvaluation, besides making export less competitive in the international market, hurts the domestic economy by stimulat-
ing imports and making it harder for domestic goods to compete with the imported ones. As a result, growth of domestic output and employment may slow down.
Indian rupee was devalued by nearly 25 percent to 50 for one US dollar last year. Same tiling happened with the Pakistani and Sri Lankan currencies. Vietnam, one of the major competitors for Bangladesh's garments exports, also depreciated its currency.
Within this critical situation and the impacts of the ongoing global recession, the government is going to place the budget for fiscal 2009-10 early next month. The government wants to see the prices of goods under control and on the other hand it wants to earn more from exports to offset pressure on balance of payments.
Exporters said they are in dilemma - importers are quoting lower price and on the other hand their competitors are getting edge over Bangladesh for devaluation of their currencies.
"Buyers offer 15 to 20 percent less price and if we don't accept, they will switch to other countries,” said Anwar UI Alam Chowdhury, former president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
The exchange rates between two currencies specify how much one currency is worth in terms of other. It is the value of a foreign nation's currency with that of the home nation's one. For example, an exchange rate of 68 Bangladeshi taka (BDT) to the United States dollar ($) means that 68 BDT is worth thesameofSl.
The foreign exchange is one of the largest markets in the world. By some estimates, about $3.2 trillion worth of currency changes hands everyday.
Bangladeshi currency has been a free-floating one since 2003. 1 he market forces of supply and demand determine its exchange rate. Economic variables, such as economic growth, inflation and productivity are the major drivers of currency movements in the country.
"Local currency remains steady because of mac-roeconomic stability," said Helal Ahmed Chowdhury, managing director of Pubali Bank, the largest private commercial bank in the country.
He sees no reason of BDT's devaluation against the dollar because the inflation is contained fully.
Despite a relatively poor demand for currency in the local market, the foreign exchange market could have been volatile without the central bank's intervention, bankers said.
"So far in this fiscal year the Bangladesh Bank has bought about $500 million from the forex market to make the market stable,” said Ziaul Hassan Siddiqui, deputy governor of BB.
He said if the BB had not bought the dollar, its price could have gone down significantly and the export earning as well.
BB also sells the dollar in case of necessity, he said, adding that these tools are used to influence the supply side.
The deputy governor also denied that exporters are getting less because of a strong local currency saying that their (exporters) cost of imported inputs has comedown.
He also termed the BB's intervention consistent with the principle of floating exchange rate regime.
A BB analysis conducted to see the impact of the floating exchange rate regime shows that the average GDP growth rate has been significantly higher in the floating exchange rate regime than that in previous regimes.
sajjad@thedailystar.net