File photo Bangladesh Bank (BB) has introduced the Crawling Peg Mid-Rate (CPMR) system for buying and selling of foreign currencies and allowed banks to buy and sell US dollars freely at around Taka 117.
The central bank took the decision at a meeting of the Monetary Policy Committee (MPC) at its headquarters in the city on Wednesday.
Abdur Rouf Talukder, governor of the BB, presided over the meeting while BB Deputy Governors Dr Habibur Rahman and Kazi Sayedur Rahman, Economist Dr Sadiq Ahmed, Director General (DG) of Bangladesh Institute of Development
Studies (BIDS) Dr Binayak Sen and Executive Director of the BB Dr Ezazul Islam were present, among others.
"In order to bring more flexibility in the foreign exchange market, Bangladesh Bank has decided to introduce a crawling peg system for buying and selling of foreign currencies. Under the new system, CPMR is set at Taka 117.00 per USD. BB will keep the new regime in review and will adjust the parameters of the regime as needed. The crawling peg system will be an interim arrangement before moving to a fully flexible market based system in the near future," as per a BB press
release.
The crawling peg is a system of exchange rate adjustments in which a currency with a fixed exchange rate is allowed to fluctuate within a band of rates. The method fully uses the key attributes of the fixed exchange regime as well as the flexibility of the floating exchange rate regime.
According to the International Monetary Fund (IMF), crawling pegs are often used to control currency moves when there is a threat of devaluation due to factors such as inflation or economic instability.
At the same time, maintaining a crawling peg imposes constraints on monetary policy like a fixed peg system, it added.
The committee also decided to end the SMART lending rate mechanism.
Now, banks can set the lending rate based on the demand and supply of dollars, according to a circular issued after the meeting.
