Due to the volatility in the kerb market, the dollar was sold for Tk 129 to Tk 130 in Bangladesh on Thursday, marking a record high. The market has become volatile again, despite record remittance and high export earnings.
The economists and bankers said that the Bangladesh Bank's instruction to pay all the import liabilities within December and its indecisiveness led to the volatility.
They also warned that if this continued, rising import costs would hit inflation harder. Insiders also said that the crawling peg system was not working as banks were running the system differently, while a new crawling peg may be introduced soon.
Following the fall of the Awami League government, the market stabilized as the interim government took several measures related to the dollar rate.
At the start of December, some banks started buying the dollar at Tk129-130 earlier this month.
In November last year, the dollar hit Tk127 in the market. However, on December 22, the central bank sought explanations from two state-owned and 11 private banks for buying dollars at a higher price from foreign exchange houses.
Later, the banks decided not to pay more than Tk123 for a dollar. However, the central bank still uses the official rate of Tk120 on its website, even though the average market rate was between Tk125 and Tk126.
The buying rate for remitting in banks was Tk123.40-124 on Thursday. On the other hand, in the kerb market, or open market, the dollar price was Tk126.20 to Tk130 depending on demand.
Zahid Hussain, former lead economist, World Bank Dhaka office, told: "I think there are two main reasons behind the sudden spike in the dollar rate.
"One, the banks were instructed to pay off their previous dues. They were asked to pay off the deferred LCs and aggregate LCs like electricity and fertilizers on time. For this, they had to collect dollars from the market. That means there has been a demand spike for dollars in the market."
However, this economist believes there was a good intention behind this directive of Bangladesh Bank.
"Due to the recent Moody's downgrade, there has been a big drop in reputation. The third-party banks are either charging extra for LC settlements with our country's banks, or they just do not want to do transactions at all. Therefore, there was a need to rebuild this reputation by settling deferred LCs."
This white paper committee member highlighted the indecisiveness of Bangladesh Bank as the second reason for the dollar spike.
"When the IMF came to discuss in early December, they said that they were unhappy with the current fixed crawling peg exchange rate. It will have to be changed to a market flow exchange rate. After that, it was announced that Bangladesh Bank would go to the new crawling peg system. As a result, speculation was rife in the foreign exchange market.
"Due to their (BB) indecisiveness, a kind of speculation has been created in the market. Actually, in the money market, you have to be quick and decisive. You have to work first and then talk," he added.
