Bangladesh Bank has stated that it places the highest priority on containing inflation; however, it is unclear if it is actually doing so. For three fiscal years, Bangladesh Bank has sold a significant portion of its dollar reserves in order to maintain the stability of the dollar market. This time, Bangladesh Bank is buying a lot more dollars from commercial banks in auctions to keep the dollar market stable. So far, Bangladesh Bank has bought a total of 1 billion or more than 1 billion dollars from the market. Most recently, the central bank bought $47.5 million from eight banks in an auction on Tuesday at a price of Tk 121.70 to Tk 121.75.
Bankers and economists say, "When Bangladesh Bank buys dollars from the market, the supply of money in the market increases, which increases inflation. In addition, this move to buy dollars stops the dollar from falling in value according to the current market. Even if the dollar value fell, it would have helped control inflation rates. However, Bangladesh Bank may not be going in that direction to increase remittances and export earnings. Although they currently believe that inflation should be given more importance than increasing reserves."
"If Bangladesh Bank buys dollars from the market, it increases the money supply in the market and incites inflation. And if Bangladesh Bank does not buy dollars, the price of the dollar will decrease slightly. This will also create an opportunity to reduce inflation. But there is a question as to why Bangladesh Bank is walking a different path despite talking about reducing inflation," Dr. Zahid Hossain, former Chief Economist of the World Bank's Dhaka office, told the Khaborer Kagoj in this regard.
"It is true that the dollar market is stable with the current steps taken by Bangladesh Bank. But I think that since the dollar price has increased significantly in the last three years, Bangladesh Bank could have taken some risks by prioritizing reducing inflation. Even if the dollar price had fallen slightly, it would not have had a significant impact on remittances or exports. In his opinion, emphasis should have been placed on reducing inflation, and a decision to intervene could have been taken after observing the market for a month or two," he said.
The relevant officials of Bangladesh Bank said that the reason for buying dollars is, "Both a sudden increase and an abnormal decrease in the value of the dollar are harmful to the economy. Currently, the country has adequate food reserves, and foreign debt payments have been made properly. As a result, there is no possibility of a strong demand for dollars in the near future. According to them, this dollar purchase by the central bank will further strengthen the reserves. And if political stability comes after the national elections, investment will increase. As a result, the demand for dollars may also increase. Then Bangladesh Bank will take measures according to the situation."
"Currently, the supply of dollars in the market is higher than the demand. That is why Bangladesh Bank is buying dollars from the market through auctions. This process will continue in the future to keep the market stable," said Arif Hossain Khan, executive director and spokesperson of Bangladesh Bank in this regard.
"While buying dollars from the market increases the supply of money in the market at one point, on the other hand, money is being withdrawn from the market through treasury bills and bonds. At the same time, banks are also borrowing less from Bangladesh Bank through repo. As a result, the money supply in the market is not increasing much. And there will not be much impact on inflation. We are trying to keep the market stable through the ongoing monetary policy," a senior Bangladesh Bank official, speaking on condition of anonymity, told the Khaborer Kagoj. When asked if there is a chance of the price of the dollar falling, he said that remittances have come down due to the slight fall in the dollar price in August. There is a risk that the activity of the hundi scammers will increase again at this opportunity. As a result, there is no opportunity to reduce the dollar price at this time.
Recently, Bangladesh Bank Governor Ahsan H. Mansur said at an event that more dollars will be purchased if needed in the future. On the other hand, at another event, he said that Bangladesh Bank has a plan to bring down inflation to 3-4 percent.
According to the latest report of the Bangladesh Bureau of Statistics (BBS), inflation increased slightly again in July. At that time, overall inflation was 8.55 percent. This rate was 8.48 percent in June.
As per data from Bangladesh Bank, the country's foreign exchange reserves are strengthening due to increasing remittances and export earnings. Bangladesh Bank's gross reserves stood at 31.38 billion, or 3,138 billion dollars, on Tuesday. In addition, according to the IMF's BPM-6 method, the reserves stood at 26.39 billion, or 2,639 billion dollars.
