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In good shape

Star Business Desk
The economy performed remarkably well despite the global economic crisis and macroeconomic indicators are in good shape. The real GDP is clocking 5.9 percent growth, reserves have crossed the 10 billion mark and the financial system remained sound. This relative stability helped to put Bangladesh in the limelight, Standard Chartered Bank looks back and reviews the year2009.
Bangladesh figures in a select group of countries that have emerged from the shocks of the global economic crisis with a decidedly positive growth outlook.
The US dollar strengthened globally in the early part of the year, as carry trades unwinded and investors flocked to the relative safety of short-term US treasuries.
However, the dynamics in the local foreign exchange markets worked quite differently. Due to the commodity price crash, value of imports dropped sharply. Gapital machinery imports also declined indicating sluggishness in the manufacturing sector investment. Exports also slowed in certain sectors due to collapsing demand in the developed markets, but the resilience of RMG and textiles sectors helped to prop up export receipts.
The key source of funds in the foreign exchange market continued to be the wage earners remittance, which recorded $9.7 billion in FY09 (22.4 percent growth) and continued the robust trend later.
The decline in imports and slower drop in exports as well as the record remittance resulted in a swelling current account surplus, which kept the local foreign exchange and taka market very liquid throughout FY09.
While this large liquidity overhang could have forced the taka to appreciate, judicious
purchases by Bangladesh Bank to mop up excess liquidity helped to keep the exchange rate of the taka broadly stable, and helped preserve external competitiveness of exporters. The dollar-taka remained range-bound throughout the year and fluctuated within a narrow band.
Currency trading volumes averaged around $20 million a day, a significant portion of which was the regular purchases by Bangladesh Bank in the interbank market. In the interbank market, market participants were encouraged to start forward trading.
As the major economies bounce back from recession, exports should also experience a strong bounce and the export figure of $2.8 billion in July-August confirms this. The stimulus measures announced by the government and the easy monetary condi-
tions set by Bangladesh Bank should also help stimulate investment in the export sector. With worker remittance continuing to remain strong at the height of the crisis, Bangladesh should continue to maintain a strong balance of payments despite the increased cost of import driven by higher commodity prices in recent times.
The official foreign exchange reserves continued to accumulate rapidly through out the year and crossed the $7 billion mark by the fourth quarter of FY09. This trend continued into the second half of this year, and the reserves now stand above $10 billion for the first time in the history of Bangladesh.
The local money market was vibrant throughout the year. Both banks and nonbank financial institutions widely participated in call money trading, term money trading, swaps, repo/reverse repos and most importantly secondary trading of government securities. The central bank actively used its monetary management tools including repo/reverse repo and buyback of securities to keep the market stable. The year marked a major downtrend of interest rates where the government securities' yield curve dropped by 3.11-6.82 percent.
Other benchmark rates including repo/reverse repo were also cut by 400 basis points to 4.5 percent and 2.5 percent respectively by Bangladesh Bank
In a bid to create further depth and dynamism in the secondary market for government securities, the central bank appointed four new primary dealers increasing the number to 13. There was also significant > progress towards creating an interbank benchmark yield curve similar to that of LIBOR in the UK. Banks are quoting interbank rates for DIBOR (Dhaka Interbank Offered Rate) since the beginning of 2009 and the market expects further depth in 2010. Going forward DI BOR may be used as a tool to quote to bank's customers.
While Bangladesh economy has proved to be reasonably decoupled from the financial crisis, the local equity market however experienced a moderate decline through the first three quarters. However from the fourth quarter of FY09 onwards the capital market bounced back robustly. At the end of Q4 of FY09 and QI of FY10 market capitalisation of Dhaka Stock Exchange increased by 36.4 percent and 5.6 percent respectively. Market capitalisation now stands above the $21 billion mark. The liquidity situation and turnover volume has increased dramatically with turnover up by 65.5 percent.
READ THE REST OF THE REVIEW BY STANDARD CHARTERED TOMORROW