The IMF is discussing with the central bank today about the process of setting the exchange rate

The International Monetary Fund (IMF) is holding talks with Bangladesh Bank on Wednesday (April 24) about various issues including the implementation of ‘crawling peg’ as part of the process of market-based exchange rate in Bangladesh.

A senior central bank official told The Business Standard, “The IMF will hold two separate meetings on Wednesday with various central bank teams. These meetings will discuss the progress of implementing the crawling peg mechanism for fixing the exchange rate.”

“Furthermore, there will be a detailed discussion on the current process of determining the value of money against the dollar. They want to make the dollar rate market-based. However, according to the current situation, it is not possible to make the dollar rate market-based. Besides, what are the problems of the central bank in implementing the crawling peg process? Looking, they will also be discussed,” he said.

A ‘crawling peg’ is a method of adjusting the exchange rate of the domestic currency to the foreign currency. In this system, the exchange rate of a currency is allowed to fluctuate within a certain range. In this case a maximum and a minimum limit is fixed for the currency rate.

Commenting that keeping net reserves is not a big obstacle in releasing loan installments from the IMF, this official of the central bank said, “The central bank is trying to keep the health of the reserves good. That is why in the current fiscal year, besides selling dollars from the reserves, it has also bought more than 2 billion dollars from the market. Central Bank.”

From Wednesday, the IMF team will start meeting with the finance department of the finance ministry, Bangladesh Bank, National Board of Revenue (NBR) etc. The meeting will continue till May 8. Every year before the budget a team of IMF comes to Dhaka at this time.

Krishna Srinivasan, director of the IMF’s Asia and Pacific Division, said at a press conference held in Washington on April 18, “Bangladesh has adopted a contractionary monetary policy to control inflation. But Bangladesh’s reserve situation has not improved that way. The time has come for Bangladesh to move towards a flexible currency exchange rate.”

In January 2023, the IMF imposed several conditions against the 4.7 billion loan facility for a period of three and a half years. Bangladesh got two installments by fulfilling almost all the conditions except the reserve.

After receiving the first installment of the IMF in February 2023, Bangladesh received the second installment last December. Bangladesh could not fully achieve the time-based target before receiving the second installment. In particular, the foreign exchange reserve conservation target at the end of last June was not achieved.

However, due to the IMF’s approval of Bangladesh’s official request to reduce the target of reserve conservation, the new target of reserve conservation was set at 26.8 billion dollars at the end of December. However, as of December, net reserves were $16.75 billion.

According to the data of the central bank, the country’s gross reserves were 19.89 billion dollars according to BPM6 at the end of April 17.