The central bank has intervened in the currency market to rein in growing inflationary pressure by selling 109million dollars in the inter-bank system in an attempt to strengthen the taka. Bangladesh Bank sources said the bank took the measures to stablise the currency at a time when there were large amounts of imports of food grains and petroleum. Md Yasin Ali, executive director of Bangladesh Bank said, the measures were ‘temporary.’

By selling dollars and buying taka the bank will increase demand for the local currency and push up its value. A stronger taka makes imports cheaper.

Bangladesh Bank (BB) offloaded $30million last week and $79milion two weeks earlier, according to the bank sources.

The central bank has been practicing a cautious exchange rate policy so that appreciation of the taka does not hamper export earnings.

US dollar devalued by Tk 0.10 during June-September period. The US currency sold at Tk68.80 in June of the last fiscal year, while it sold at Tk68.70 in September of the current fiscal year. The dollar price was stood at Tk68.64 on Thursday.

Prices of six major essential items, which basically contributed to high inflation, increased by 30 to 217 percent in the last few months, according to the Trading Corporation of Bangladesh (TCB).

Despite various government measures, the overall inflation rate reached around 10 percent.

Meanwhile, Prof S R Osmani of the University of Ulster, UK, said at a seminar organised by the Centre for Policy Dialogue (CPD) on April 23,

“Inflationary pressure mounted in the last five years as the country had to spend excess money on import of essential commodities due to huge depreciation of the local currency.”

“Following some neighbouring countries, the central bank could check continued inflation by appreciating taka against dollar …Had it (central bank) spent some portion of its foreign currency reserve to save the people from persisting price spiral, it would not have been illogical,” he said.

When Bangladesh repeatedly depreciated its currency, the currency of neighbouring India, the main source of Bangladesh’s essential imports, remained stable, Osmani pointed out.

“Therefore, the value of taka declined not only against dollar but also against Indian rupee. As a result, Bangladesh had to pay extra money in importing essential commodities,” he said. Extra expenditure results in extra inflationary pressure, he noted.