Bangladesh Bank needs to devise long-term policies for the foreign exchange market to rein in exchange rate volatility, analysts said yesterday.

They said different types of banks quote different prices for the dollar, which is one of the reasons behind the unusual fluctuation in the exchange rate in Bangladesh.

The other factors include gap in inflow and outflow of the dollar, inefficiency in foreign exchange management and falling inflow of remittance.

The analysts spoke at a roundtable on “Bangladesh's Foreign Exchange Market: Present and Future” organised by Bangla daily the Prothom Alo at its office in Dhaka.

Salehuddin Ahmed, a former governor of the BB, criticised the central bank for its move to cap the exchange rate last week.

“The sudden hike in dollar price was controlled artificially by putting a cap on the exchange rate. This short time decision will hurt the market in the long term,” said Ahmed.

Market should determine the exchange rate, which he said should not be controlled artificially.

Referring to the last two weeks' unusual hike in dollar price, Ahmed said it did not happen only for the market demand and there may be some other reasons. Moreover, slower growth in remittance and export also created the context of the price spike of the greenback, he said. Only ad-hoc measures cannot resolve the exchange rate unrest.

The BB will have to take steps to diversify export and balance the exchange rate for both exporters and importers to control the price fluctuation, he said.  The issue of exchange rate came to the fore last week in the wake of continued devaluation of the taka against the dollar.

Data shows, the taka went down 3.49 percent to Tk 83.66 a dollar in just two weeks since April 11.

As a result, a strong dollar has threatened to push up the price of essential commodities ahead of Ramadan. Finally, the BB put a cap on the price of US dollar -- inter-bank exchange rate plus Tk 2 on Wednesday -- to control the market. On the following day, exchange rate came down to Tk 82 a dollar from Tk 84 a day ago.

Ahmed Jamal, executive director of BB, said the central bank is working to find a way to detect the early signs of dollar price mismatch.

“The recent overnight increase in exchange rate was unusual and there might be other reasons than the demand and supply situation in the market,” he said. “But we don't have so many instruments to control the price fluctuation,” Jamal added.

He asked the commercial banks to give loans in foreign currency based on their own inflow-outflow position.

He said the local investors who were allowed to invest abroad have failed to bring return to the country. Now the central bank is rigid about allowing more investments aboard. He also said there are many such applications pending with the BB.

On the capital account convertibility, Jamal said the issue has to be decided by the government in consultation with the BB.

Mohammed Nurul Amin, chairman of Bangladesh Foreign Exchange and Dealers' Association, said the recent spike of exchange rate was a reflection of a distorted market.

He said the price shooting up by Tk 3 to Tk 4 in a few days was unusual, but the decline in the rate by Tk 2 in a single day was more unusual that has affected some banks and businesses as well.

Alamgir Morshed, managing director and head of financial market of Standard Chartered Bangladesh, said foreign exchange market has liquidity crisis at the moment.

Moreover, there is no uniform exchange rate among the banks, he said, adding that different banks -- private, foreign and state-owned -- have different buying and selling rates.

 He said brokerage houses can play a good role in an emerging market, but in Bangladesh there is no broker to balance the demand and supply.

State banks fix the exchange rate, mainly by giving priority to the importers, as a higher dollar price will affect import-dependent commodity market badly, said Abdus Salam, managing director of Janata Bank.

“But remitters will be discouraged to send money home due to lower exchange rate,” he said.

The central bank is still very much conservative in foreign currency payments, said Sadiq Ahmed, vice chairman of Policy Research Institute.

Allowing capital account convertibility may need more time but the central bank needs to be flexible about foreign currency regulation, he said.

Towfiq Ahmed Choudhury, director general of Bangladesh Institute of Bank Management, also spoke.