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Saturday, December 31, 2011

Taka depreciation and rise in oil price

An interesting explanation on why the government had to raise oil price this time came to the picture. It's nothing but the continuous Taka depreciation over the last couple of weeks. As the government claimed (I don't the truth behind that ), sharp depreciation in Taka value against the US$ have escalated losses of Bangladesh Petroleum Corporation (BPC), which left the government but to increase oil price for fiscal adjustment.

Here is the link of the explanation from the Finance Express.

Comment: The reason is logical, but the fact is? I don't know. Because I don't know the earnings function of BPC. Anyway, I see a cycle of Taka depreciation whether because of volume of oil import or oil price adjustment. Like what? Because of the high volume of oil import, pressures on foreign exchange reserves rose, which forced the central bank to let the exchange rate to the market for adjustment. So, the market experienced Taka depreciation against US$. Now, due to Taka depreciation, subsidy for oil becomes huge and the government had to raise the oil price. Now the government will more confident about its fiscal balance and it will continue to increase oil import, so again depreciation of Taka will come to the picture.

(High volume of oil import - depreciation of Taka - losses of BPC increases - higher oil price - higher revenue of the government - higher oil import - depreciation of Taka)

Do you want to know the impact of depreciation on the economy? Here is a report published in the Daily Star.

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