BANGLADESH EXPECTED TO DEVALUE CURRENCY 5 PERCENT CENTRAL BANK CITES EXCHANGE-RATE RELATIONSHIPS

BANGLADESH EXPECTED TO DEVALUE CURRENCY 5 PERCENT CENTRAL BANK CITES EXCHANGE-RATE RELATIONSHIPS

Bangladesh is expected to devalue its currency, the taka, by 5 percent over the next two months to check a flood of cheaper foreign goods, bankers said.

Foreign exchange dealers said on Monday that Bangladesh was likely to devalue the taka by up to 5 percent before end of the year to make imports costlier and exports more competitive.Bangladesh Bank, the country's central bank, on Sunday adjusted the taka down against U.S. dollar by 0.62 percent to 40.40/40.60, the second such move in seven weeks.

The bank said in a statement it took the step "in view of the changes in exchange rate relationship among the major currencies in the international market and also keeping in view the need to maintain competitiveness of Bangladeshi goods."

A top banker with a leading state-owned bank said: "The move is aimed at discouraging imports and boosting exports. Bangladesh has to follow suit after neighboring countries devalued their currencies."

He said the devaluation of the taka was necessary to make imports costlier and protect local industries.

Dealers said reducing the taka's value against the dollar was justified after India and Pakistan devalued their currencies in recent weeks.

They said India, whose rupee has fallen around 6 percent over the past few weeks, was one of Bangladesh's biggest trading partners.

Official imports from India totalled more than $400 million a year against negligible exports.

But officials say more than $1 billion worth of Indian consumer items are smuggled into Bangladeshi markets annually.

Dealers said increased food imports and soaring inflation warranted more currency devaluations. "The direction (devaluation) will be upward in this case," said one dealer with a foreign bank.

Bangladesh imported food worth nearly $600 million in 12 months to June this year following crop losses caused by drought and floods.

They said inflation, only 2 percent last year and now more than 5 percent, might hit 8 percent by the end of fiscal 1995-96 in June.

But central bank officials were unwilling to predict the rate of taka devaluation, only saying that Bangladesh might have to respond to exchange rate changes in international market.

"Bangladesh may have to devalue the taka if the dollar gains further in the international market," a senior bank official said.

The officials said Bangladesh's foreign exchange reserves also dwindled to $2.7 billion at the end of September from more than $3.4 billion in April this year.