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Bangladesh finally moves towards market-driven exchange rate, with US$500-million guardrails against instability on the foreign-exchange market, to remove a last roadblock to IMF loan payout worth $1.3 billion.
Foreign financiers have now confirmed providing an aggregate sum of $3.5 billion for budget-deficit financing by June, Bangladesh Bank Governor Dr Ahsan H Mansur announced Wednesday on conclusion of last-ditch negotiations particularly with the International Monetary Fund (IMF).
The ministry of finance in Dhaka and the Washington-based Fund declared conclusion of the fourth review of the IMF credit package on a positive note, clearing decks for the release of held-back two tranches of a $4.7-billion lending package on fulfillment of the conditions.
The central bank of Bangladesh moves towards lifting controls on the exchange-rate regime repealing the buying-selling spread in US dollar exchange with taka to fulfill IMF's last unmet condition for securing the stalled fund release.
With the adoption of such flexibility in taka-dollar exchange, the Bretton Woods institution agrees, after series of parleys, to release fourth and fifth tranches (each equivalent to $650 million) of the loan by next month, according to the BB governor, Dr Mansur.
Under the new managed-floating system, the commercial banks will be allowed to trade the American greenback freely but there will be a band or corridor that the central bank will not disclose as part of its market- monitoring secrets.
If the exchange rate overshoots or about to cross the band, the banking regulator will act and start selling the US dollar from a $500-million initial "intervention fund" to cool temper tantrums of the foreign-exchange market, according to the central bankers.
Sharing latest developments over IMF fund release, the banking regulator Wednesday organised a press briefing at its headquarters which the BB governor joined virtually from Dubai and confirmed that the IMF mission signed a staff-level agreement which will be approved by its board next month.
"We're expecting to receive $1.30-billion fund from the IMF by June next," the governor told the press about the breakthrough after his Washington mission.
Mr. Mansur, who took charge of the central bank's leadership after the July-August mass uprising, said they kept on bargaining with the multilateral lending agency over proper timing in implementing a more flexible exchange rate.
Describing current macroeconomic situation, he said exports make a steady growth while remittance grew nearly 30 per cent, which is "significant". At the same time, the country's balance of payments (BoP) continues improving.
The forex reserves keep building up in recent times without external supports and exchange rate remains stable for the last several months without any kind of intervention by the central bank, he said.
"This gives us confidence going for market-driven exchange rate (managed floating) and we do belief that our decision and the time is right," the governor says on a resume on the economic fundamentals.
But it does not mean the dollar can be sold at any price. "We expect the exchange rate will be around the current rate due to having enough stock of forex on the market. "Hopefully, the BB does not need to intervene, but it will if necessary," he notes.
He said the BB will intervene in the market, if it requires, through selling and buying dollars like a participant in the market.
The central bank governor informs that they updated the commercial bankers about the regime shift in exchange rate in a meeting earlier in the day.
With the IMF's $1.3-billion fund, the BB boss shared that Bangladesh will receive a total of around $3.5 billion by June from different development partners like the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank and Japan International Cooperation Agency.
"So, supply will not be a problem here," he said, issuing a stern warning against any possible syndication which tries to create volatility on the forex market.
"Don't try to put your (syndicate) hand in the market, it will be burnt," he forewarns.
In fact, the stalemate over getting the IMF funds arose centering around the exchange rate as an IMF mission to Bangladesh kept pushing for a more flexible exchange regime while their Bangladeshi counterparts were shaking their heads on grounds that it could create volatility on the foreign-exchange market, which remained stable for the last few months following troubleshooting action.
Following suggestion of the IMF, the central bank introduced a reference rate-centric exchange system making necessary changes to the non-crawled crawling-peg mechanism on December 31st, 2024.
Couple of days later, the banking regulator issued another instruction directing the commercial banks to keep the margin between buying and selling of each American greenback by Tk1.0, which becomes a major concern to the IMF which smells some sort of control the banking regulator applying to keep the exchange rate in check through using the direction.
Close on the heels of the BB governor's press briefing, the central bank also repealed the dollar buying-selling spread through issuing a circular, setting at rest all the concerns over the release of IMF funds which economists say is also vital for the country's international credit ratings.
The IMF approved the $4.7-billion loan for Bangladesh in 2023. So far, the country has received three tranches altogether amounting to $2.3 billion.
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