The New Nation - Internet Edition

UNB, Dhaka

The local currency, Taka (BDT), got stronger appreciating 0.7 percent against the US dollar in 2007, making a turnaround year from a trend of depreciation in the last few years.

"Improved remittance inflows and strong growth in exports have contributed to the strengthening of BDT," Citibank Bangladesh said in its annual financial market update released here on

Wednesday.

The BDT has seen rapid depreciation in the last few years -- 2.76 percent in 2004 and around 9 percent the following year. However, the pace of deprecation slowed down in 2006 when the BDT experienced a 4.4 percent decline in value.

The update said 2007 was a turnaround year for the BDT. Despite a downtrend in the first quarter, the BDT value went up by 0.7 percent against the Greenback.

The update said foreign exchange remittance experienced a 24.5 percent growth in 2006-07 though exports slowed down during the second half of 2007.

In the first five months of FY08, the growth was 21.7 percent. "We have also seen a major growth in the foreign exchange reserves of Bangladesh in 2007."

As per the latest report, foreign exchange reserve went up to USD 5.16 Billion from the last year's figure of USD 3.88 billion which indicates a 33 percent rise in national reserve.

The report said compared to the previous three years, USD/BDT rates were fairly stable in 2007. In 2006, USD traded within a 6.75 Taka range (66.20 - 72.95).

It observed similar scenario in 2005 (61.50 - 67.0) and 2004 (59.01 - 62.50). However, this year only a 1.92 taka difference between yearly high (70.40) and low (68.48) of USD/BDT rates, a thin range compared to the last year's.

"A significant trend in 2007 was a shift of volumes from the third currency based cross currency transactions to USD/BDT inter-bank transactions," said the bank's financial market update.

Last year, most of the inter-bank transactions were routed through the third currency trades. But as the USD/BDT exchange rates became relatively stable, market participants increased their trades to simpler and more customary USD/BDT channels.

By the end of December, almost all the trades were done through the USD/BDT inter-bank channels.

The market update said the inter-bank call money market was largely surplus most of the time due to a slowdown in credit growth in 2007.

"Government sector contributed most to the slowdown in credit growth," it said, adding that banks and financial institutions with excess funds were seen investing their funds in the Reverse Repo window of the Bangladesh Bank.

The Reverse Repo rates of Bangladesh Bank stayed at 6.50 percent throughout the year. As the market was mostly liquid, most of the time the call rates traded around the benchmark Reverse Repo rate.

However, the call rates were seen moving upward couple of times in the year. Due to pre-Eid-ul-Fitr cash withdrawals, call rates went up to 8.50% in October. Again in December, the market experienced tightness in liquidity due to pre-Eid-ul-Azha cash withdrawals. This time the call rates were traded as high as 17%.

The market had to wait for 19 months to see call rates trading in double digits numbers.

Due to surplus liquidity in the call market, the Repo window of the central bank remained mostly unused throughout. In a few instances, the market saw the central bank providing liquidity to the market at 8.50%.

On stock market, the DSE General Index rallied by over 83.1 percent in 2006-2007 and 90.8 percent in 2007 (year to date). "We have seen almost four-fold increase in daily traded volume in 2007 compared to the previous year," said Citibank Bangladesh.