Written by The Banking Post
The Bangladeshi Taka continued to remain undervalued against the US dollar in June, bolstering export earnings and remittance inflows amid a relatively favourable exchange rate environment, according to the latest data from the Bangladesh Bank.
The Real Effective Exchange Rate (REER) — a key metric for assessing the competitiveness of a country’s currency — stood at 98.61 in June, improving from 99.27 in May. The drop was mainly attributed to easing domestic inflation, according to central bank officials.
A REER value below 100 indicates that the local currency is undervalued relative to a basket of currencies from Bangladesh’s major trading partners. Such an undervaluation typically enhances the competitiveness of exports and encourages remittance inflows, although it can also make imports more expensive.
The REER index, which uses fiscal year 2016 as its base, reflects trade-weighted exchange rates of 18 key currencies that account for approximately 85% of Bangladesh’s external trade. It incorporates data on exports, imports, and remittance flows.
A senior official from the central bank, requesting anonymity, said that the recent improvement in REER reflects a confluence of favourable factors: “The US dollar has weakened slightly, inflation has eased, and we’ve seen robust growth in both exports and remittances.”
Bangladesh’s inflation rate currently hovers around 8%, down from peaks of 12% recorded earlier. Central bank officials noted that such a competitive REER level hasn’t been seen in many years — neither during the prolonged tenure of the current administration nor under former Bangladesh Bank Governor Abdur Rouf Talukder, when the REER often exceeded 107–108, indicating an overvaluation of the Taka.
Economists are interpreting the REER movement as a positive sign for the external sector.
Dr Mohammad Akhter Hossain, the newly appointed Chief Economist of Bangladesh Bank, described the current REER level as “healthy and desirable.”
“When the REER is close to its equilibrium, the risk of capital flight is significantly reduced. A stable REER supports macroeconomic certainty and boosts investor confidence.”
However, some experts cautioned that the economy’s heavy reliance on imports calls for a balanced approach to currency management.
Dr M. Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh, noted: “Maintaining the REER near 100 is optimal for a largely import-dependent country like Bangladesh. Fortunately, global commodity prices have been relatively stable and domestic production strong, which has helped contain inflationary pressure.”
The Bangladesh Bank continues to monitor REER dynamics as it navigates currency policy amid persistent global volatility and domestic economic adjustments.
