How useful 'crawling peg' in determining dollar rate

Bangladesh Bank has made bank interest rates 'market-based' to curb rising inflation. As a result, as interest rates on all types of loans increased, so did the rate of the dollar. In the meantime, the price of the dollar has been increased from 110 taka to 117 taka. As a result, there was a major devaluation of taka against dollar; But there are doubts as to how much inflation will be slashed by the Central Bank's mechanism to maintain the rate of dollar in the name of implementing the crawling peg method.

In this regard, economists, importers, and exporters say that after this action of the central bank, the government should now take measures to control the cost of business. Because, if the cost of business increases, the product price will naturally increase. It should be remembered that due to the increase in the dollar price by 7 taka at a time, more pressure may be put on the price of electricity and fuel. Even though traders buy dollars at an extra rate to import goods, Bangladesh Bank used to pay a 110 taka rate to import goods like electricity and energy; On the contrary, now the rate of dollar is increasing.

As a result, inflation is likely to increase, so the common man will be under more pressure. Economists have been suggesting market-based loan interest and exchange rates for a long time. Of late, Bangladesh Bank has made the loan interest rate market-based. It should have been done earlier. Now the interest rate at the retail level will be determined based on the bank-customer relationship. It has been said that the interest rate can be determined in each sector taking into account the risk.

As a result, transparency will increase in the market. By this, customers will know in which sector which bank wants to give loans at how much interest rate. Borrowers can make their decisions accordingly. So far bankers were reluctant to lend in sectors where risk was high. Now the efficiency in loan distribution is expected to increase further.

But it is now to be seen how effective Bangladesh Bank's 'Bank Interest Rate' system to maintain the dollar price in the name of the crawling peg will be. We think that at this dollar exchange rate, the price of all imported goods will increase with the increase in duty. That will increase the production cost of the business. Therefore, like the interest rate of the loan, the price of the dollar must be left to the market. Otherwise, the flow of dollars will not increase. As a result, inflation pressure will increase.

Meanwhile, there is no good news about the reserves in the country amid this instability regarding the price of the dollar. So the market should be allowed to run freely without suddenly imposing any discriminatory decision. Therefore, the authorities should keep a close watch on inflation, exchange rate, exports, and remittance flows and take necessary steps.