On high exchange and interest rate in inter bank market

Now the price is determined through the foreign exchange market force, which is normal in the free market.

My observation or rather question is -- "why there will be so much gap between the exchange rates of nationalised commercial bank (NCB) and the market."

The foreign exchange rates in NCB's is 5 percent less than the inter bank rates (NCB Tk 59.99, inter bank Tk 63.19). Thus the importer customers of the NCB's are more benefitted compared to the customers of other banks. On the other hand, the exporter customers of the NCB's are suffering losses.

Two exchange rates will be harmful for the market and economy.

Most exporters except garments exporters are NCB's customers are bearing huge losses due to lower exchange rates. This is not acceptable.

Bangladesh Bank (BB) should have an exchange rate range in mind and when the rates go beyond the range, Bangladesh Bank should intervene.

There is muted intervention through NCB's which is not working.

There are two options that come to mind:

1) NCB must raise foreign exchange rates to market rate. It is harmful to keep the rates down artificially, or

2) Bangladesh Bank should assess the forex demand and do a full intervention and bring down the forex rate in the inter bank to NCB level.

Forex rate cannot be reduced by making the local money market tight. This is because banks need to meet their import obligation.

Local money market is high enough at the moment, inter bank call rate is about 50 to 60 percent. At the same time the dollar rate is also high. This tells us that the market demands the value of Taka to go down.

Another reason for such high call money rate is that the leasing companies are allowed to operate overnight in the inter bank market, though they do not maintain any current account or give overdraft. They give term loan or equity finance. As they are borrowing short and lending long, they are making the call money rates to go high unnecessarily. Leasing companies should not be allowed to operate in inter bank. They may arrange for funding through 'securitising' loans or issuing bonds.

Presently, the restlessness existing in the forex market must be solved immediately and for this it is important that the NCB's should not keep their exchange rate artificially low. This can be achieved either by full intervention by Bangladesh Bank to reduce foreign exchange rates to the level that of NCB or allow the NCB to raise the exchange rate to market rate as being done by private and foreign banks.

Kazi Abdul Mazid is Managing Director, The Premier Bank Limited.