May 31, 2003	Saturday	Rabi-ul-Awwal 28, 1424

DHAKA, May 30: The money market will decide the value of taka from Saturday against foreign currencies, specially the greenback, as the central bank has decided to float the exchange rates.

The Bangladesh Bank on Thursday issued a circular to different commercial banks notifying that it will not dictate to them the band within which they have to trade the dollar or other currencies against taka.

Governor central bank Dr Fakhruddin Ahmed at a meeting with deputy governor Allah Malik Kazmi and other officials took the landmark decision regarding this major reform in the financial sector, according to central bank sources.

According to the circular, the exchange rates for the Bangladesh Bank’s spot purchase and sales transactions of US dollar with authorized dealer banks will be decided as before on case-to-case basis, but without reference to any pre-announced band.

“Along with interventions in the taka money market, the US dollar purchase or sale transactions shall be undertaken by the central bank as needed to maintain orderly market conditions”, it said.

The last taka-dollar exchange rate, fixed by the BB, was Tk57.40/Tk58.40 for buying and selling, with average rate of Tk57.95, since the latest devaluation done last year.

There have been discussions over the market-pegged exchange rate for about last one year as the International Monetary Fund (IMF) set it as a condition to get access to its around $200 million poverty reduction and growth facility (PRGF).

Bangladesh government was initially hesitant to go for free float the exchange rates, citing a dwindling foreign-exchange reserve.

However, on persistent persuasion by the IMF, finance and planning minister M Saifur Rahman last August declared that the government would float the taka by December 2002 provided the forex reserve reached $2 billion mark.

When the BB decided to float the exchange rate, the forex reserves stood at $1,894.49 million, on Thursday, according to the bank sources.

Meanwhile, the central bank officials brushed aside any problem in a new system as they said when Pakistan floated on the exchange market it had forex reserves of around $1 billion and Sri Lanka had around $500 million.

“But, when India, Pakistan and Sri Lanka introduced floating rates, there was some volatility on the market for some time. But this is unlikely in case of Bangladesh as the official and kerb-market dollar rates are now very close,” a BB official said.