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A stable year for currency

Star Business Desk
The taka has shown commendable strength in 2009 contrary to the other Asian currencies mainly because of slower demand for import payments due to falling commodity prices, Citi NA Bangladesh said in its annual market update for 2009.
A robust supply of the greenback from relatively stable export growth, workers’ remittance inflow and the central bank s continuous purchase of the dollar from the local interbank market have also helped keep the money market stable throughout die year.
The bank said these moves led to a stable foreign exchange market with the local currency trading at around 69.06 against the dollar until the end of September.
Citi in its annual analysis also indicated that die last two quarters’ activities predict a positive turn of the economy in 2010
From October onwards, the taka started to depreciate marginally. By die end of 2009, the dollar/taka rate hovered around 69.20, marking a slight depreciation of only 0.39 percent from die opening level of2009.
Available import data based on letters of credit (LCs) for July-Nov and export data for July-Oct indicate no significant upturn or slackening in economic activities in the last two quarters of 2009 compared to the previous quarter, but signs started emerging that output activities will pace up from early 2010.
Commercial banks' IC opening for capital machinery imports has grown by 13.9 percent year-on-year in the July-October period. Excess reserve of banks with die BB has started to decline gradually, and the inter-bank call money rates turned around from the near zero level.
About inflation, the bank said it might go up in the coming year as the prices of commodities on domestic and international markets are increasing for the past few months.
.After bottoming out at 2.25 percent in June, point-to-point CPI inflation edged up to 6.71 percent in October, with both food and nonfood prices registering a significant increase.
Global and regional price trends indicate that point-to-point CPI inflation in Bangladesh is likely to edge up in the coming months. The 12-month average CPI inflation -- at 5.14 percent in October — may however continue to decline for a few more months (widi earlier higher inflation months falling out in the averaging) before edging up and seems to remainWithin the 6.5 percent ceiling stipulated in the BB's Monetary Policy Statement for the second half of2009.
Slackening credit growth in the early part of the outgoing year left the market with surplus liquidity, leading the inter-bank short-term money market at the lowest level. The call money rate, which hovered around
10 percent in January, came down to between 1 percent and 2 percent at onestage in the middle of2009.
To ease the credit condition in the backdrop of domestic lower inflation and global recession, the central bank had also reduced the rate on repo and reverse repo by 25 basis points to 8.50 percent and 6.50 percent from 8.75 percent and 6.75 percent respectively on March 11, 2009. The following six months saw the call money rate dip to near-zero levels, with most of the deals settling within 0.1-0.25 percent, as the BB temporarily stopped taking away money from the market through its reverse repo window.
However, from early August 2009, the central bank resumed its auction of 30-day BB bills to mop up some of the excess liquidity that prevailed in the market. In September, call money rates spiked due to cash withdrawals from the banking system ahead of the Eid festival.
Subsequently, BB's repo and reverse repo operations also resumed on October 12, 2009 with the rates realigned to 4.5 percent and 2.5 percent respectively to increase economic activities following lower credit demand and excess liquidity in the market during the previous two quarters. Since then call money rates took its queue from the repo rates and settled around 4 percent level to close the year.
The government securities' yield curve went through a major downward shift in 2009. Rates for govern-
ment securities of all tenors dropped by 280 to 563 basis points from their January levels. The yields of short -end bills with 91 days, 182 days and 364 days tenor dropped by 563 bps, 462 bps and 399 bps respectively. On the other hand, rates of mid and long-end government bonds with 5 years, 10 years, 15 years and 20 years tenor declined 280 bps, 297 bps, 345 bps and 390 bps respectively.
The decline in yield was highest in the 91 days bill that lost 563 bps.
Excess liquidity in the country's banking sector reached an all-time high at the end of June, indicating a sluggish trend in the investment scenario that is still persisting. The overall excess liquidity with the commercial banks stood at Tk 34,700 crore in June 2009, registering 165 percent growth over that of the same period of the previous calendaryear.
So the BB decided to reintroduce the auction of 30-day Bangladesh Bank bills from August aiming to withdraw the excess liquidity from the market. Earlier, the central bank introduced 30-day and 91-day Bangladesh Bank bills in October 2006 as the monetary policy instruments following decision that the government treasury bills and bond auctions would exclusively be used for government debt management. However, the auction of 91-day Bangladesh Bank bill was discontinued to avoid its duplication with 91-day Treasury bill from January 8, 2008.