Stable taka revives exports, but keeps inflation stubborn
Mushir Ahmed
A stable taka has helped revive the country's sagging exports, but it has spurred inflation at over double digit rate, threatening the survival of tens of millions of poor, analysts said Monday.
The country's exports soared nearly 10 per cent to 7.73 billion dollars in the first seven months of the fiscal year, thanks largely to huge growth in shipment of the ready-made garments.
Manufacturers said a weak and largely stable Taka made the country's exports items cheaper than their main rivals, China and India, in the international market, attracting droves of buyers back to Bangladesh.
"A key reason for our export comeback is our stable currency. It has made our export items more competitive than China, India and Vietnam," said president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Fazlul Haq.
International buyers who have left Bangladesh for South East Asia, China and India after the labour unrest and political trouble last year, have now returned because "our products are now the cheapest and better in quality", he said.
While Bangladesh Bank has intervened in the money market to keep Taka stable against a falling US dollar in the recent months, currencies of China and India, the country's main export competitors, have appreciated considerably.
Chinese Yuan gained six per cent against the Greenback last year and three per cent in the first two months of 2008, while Indian Rupee has appreciated at least 11 per cent during the period.
"Thousands of Chinese and Indian garments manufacturers have found it impossible to maintain their competitive advantages due to their appreciating currencies," a senior executive of European buying house, said.
"A ten per cent appreciation can make thousands of factories sick within months, because globally companies usually operate at a very small margin," he said.
"Bangladeshi exports rebounded due to many reasons. But one of the key factors is weak taka," he added.
Bangladeshi exports have been in the negative territory even after the first five months of the fiscal year. Overall exports dipped below two per cent until November.
But after what officials say a 'stunning' comeback in December and January, export growth has clawed back to positive territory, and is now hovering around 10 per cent.
Manufacturers and officials have said that the growth would maintain the momentum in the coming months, and it would not be difficult to clock the targetted annual export of 14.5 billion dollars this fiscal.
But analysts said export growth came at a high price, as a stable Taka against a 'massively falling dollar' has fuelled inflation.
"We think much of our inflation is imported because of weak Taka. We are spending more dollars for a fewer items," a bank analyst said.
Since Chinese and Indian currencies have appreciated 'considerably' against dollar, Bangladeshi imports from the two countries-- the first and second biggest source of import-- have become costlier, he added.
Inflation has spiked above 11 per cent in January, a record since 1996, and remained over 10 per cent since July last year.
An analyst at a top foreign agency agreed that a stable Taka against a falling US dollar has seen 'inflation imported' in the country.
"But things would have been worse had not the central bank intervened to keep the Taka stable against dollar," he said.
He added that without the Bangladesh Bank's intervention Taka would have fallen further, possibly leading to even higher inflation.
A stable taka has helped revive the country's sagging exports, but it has spurred inflation at over double digit rate, threatening the survival of tens of millions of poor, analysts said Monday.
The country's exports soared nearly 10 per cent to 7.73 billion dollars in the first seven months of the fiscal year, thanks largely to huge growth in shipment of the ready-made garments.
Manufacturers said a weak and largely stable Taka made the country's exports items cheaper than their main rivals, China and India, in the international market, attracting droves of buyers back to Bangladesh.
"A key reason for our export comeback is our stable currency. It has made our export items more competitive than China, India and Vietnam," said president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Fazlul Haq.
International buyers who have left Bangladesh for South East Asia, China and India after the labour unrest and political trouble last year, have now returned because "our products are now the cheapest and better in quality", he said.
While Bangladesh Bank has intervened in the money market to keep Taka stable against a falling US dollar in the recent months, currencies of China and India, the country's main export competitors, have appreciated considerably.
Chinese Yuan gained six per cent against the Greenback last year and three per cent in the first two months of 2008, while Indian Rupee has appreciated at least 11 per cent during the period.
"Thousands of Chinese and Indian garments manufacturers have found it impossible to maintain their competitive advantages due to their appreciating currencies," a senior executive of European buying house, said.
"A ten per cent appreciation can make thousands of factories sick within months, because globally companies usually operate at a very small margin," he said.
"Bangladeshi exports rebounded due to many reasons. But one of the key factors is weak taka," he added.
Bangladeshi exports have been in the negative territory even after the first five months of the fiscal year. Overall exports dipped below two per cent until November.
But after what officials say a 'stunning' comeback in December and January, export growth has clawed back to positive territory, and is now hovering around 10 per cent.
Manufacturers and officials have said that the growth would maintain the momentum in the coming months, and it would not be difficult to clock the targetted annual export of 14.5 billion dollars this fiscal.
But analysts said export growth came at a high price, as a stable Taka against a 'massively falling dollar' has fuelled inflation.
"We think much of our inflation is imported because of weak Taka. We are spending more dollars for a fewer items," a bank analyst said.
Since Chinese and Indian currencies have appreciated 'considerably' against dollar, Bangladeshi imports from the two countries-- the first and second biggest source of import-- have become costlier, he added.
Inflation has spiked above 11 per cent in January, a record since 1996, and remained over 10 per cent since July last year.
An analyst at a top foreign agency agreed that a stable Taka against a falling US dollar has seen 'inflation imported' in the country.
"But things would have been worse had not the central bank intervened to keep the Taka stable against dollar," he said.
He added that without the Bangladesh Bank's intervention Taka would have fallen further, possibly leading to even higher inflation.
--M. M. Chowdhury (Mithu)
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