Written by The Banking Post
Bangladesh Bank has overhauled its real effective exchange rate (REER) index, one of the key gauges of external competitiveness, to better capture current economic realities.
For the first time, the central bank has incorporated remittance inflows into the REER calculation, recognising their growing influence on the foreign exchange market. The index has also been rebased to fiscal year 2023–24 from 2015–16, reflecting shifts in trade patterns, inflation differentials and bilateral exchange rates over the past decade.
Officials said the revisions aim to provide policymakers, businesses and analysts with a more accurate signal of whether the taka is fairly valued and how competitive Bangladesh is in global markets.
“Previously, some important components were missing or underweighted. We have now incorporated appropriate weights so that the valuation becomes more realistic and practical,” a senior central bank official said.
The updated methodology also captures changes in Bangladesh’s trade geography. China is now the largest trading partner and carries the highest weight in the new REER basket, replacing India. One Middle Eastern country has been dropped as its trade share fell below 1 per cent. The revised basket now includes 17 currencies, covering more than 85 per cent of total trade.
The central bank plans to apply the new base year and methodology to REER and related indicators starting from the December 2025 calculations. Fiscal year 2023–24 was chosen as the base year as it better reflects current economic conditions with fewer data distortions.
Bangladesh Bank regularly updates key foreign exchange indicators, including REER and the nominal effective exchange rate (NEER), which are widely used to assess currency valuation and export competitiveness.
A REER reading above 100 typically signals an overvalued currency and weaker competitiveness, while a reading below 100 suggests undervaluation and stronger competitiveness. In November, Bangladesh’s REER stood above 106, indicating that the taka remained overvalued.
