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Expected to stabilize the currency market in the crawling peg system

by Afonso
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Bangladesh Bank will introduce the crawling peg system within a few months to stabilize the foreign exchange market in the country. Which is a method of adjusting the exchange rate of foreign currency with domestic currency. Analysts have emphasized on proper management to make it work. However, they fear that this method will not work if inflation is not kept under control.

The foreign exchange market has been volatile for more than two years. During this period, the rupee has depreciated by more than 30 percent against the dollar. Even then the foreign exchange market has not stabilized. Currently, the highest rate of dollar in the bank is 110 taka. And 125 taka in open market.

A ‘crawling peg’ is a method of adjusting the exchange rate of a foreign currency to a country’s local currency. It is very much an imitation of a controlled principle. The essence of this policy is to allow the exchange rate of a currency to fluctuate within a certain range. That is, fixing a range of the maximum and minimum value of the dollar in a country. This limit is adjusted frequently in case of high inflation and exchange rate volatility. A ‘crawling peg’ is essentially the step before entering the open market rate from a controlled or pegged exchange rate.

Bangladesh Bank Spokesperson Majbaul Haque said, we are hoping that along with the global chain, the rest of the volatility in the dollar market will also decrease and it will also become the market best.

Bankers feel that it is difficult to control the market-based exchange rate directly. Therefore, they hope that the crawling peg system as an interim measure will help stabilize the exchange rate.

Analysts say the crawling peg system should effectively stabilize the overall economy as well as keep inflation under control. Otherwise there is a risk of the opposite happening.

Economist Ahsan Habib said, those who are market players can read the rate with a rough idea. Since you are going through a formula they will understand which way the rate can go. So predicting the foreign exchange market is a big deal.

According to economists, this policy does not work when a country’s reserves weaken and exchange rate volatility increases. Hence, proper management is required to reap the benefits of the crawling peg system.



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