Written by The Banking Post
Bangladesh Bank is preparing to revise the base year for calculating the Real Effective Exchange Rate (REER), with FY2023-24 emerging as the preferred choice, as the central bank seeks a more realistic measure of the taka’s external competitiveness.
At present, the REER index uses FY2015-16 as its base year. Officials say that benchmark no longer reflects current market realities, as Bangladesh’s import and export relationships with key trading partners have changed markedly over the years.
REER tracks the value of a country’s currency against a weighted basket of trading partners’ currencies, adjusted for inflation. A rising REER signals a loss of export competitiveness, while a falling index suggests improved price competitiveness in global markets. Policymakers and international institutions widely use the indicator to assess currency alignment and trade dynamics.
A senior central bank official said the planned revision aims to align the index with today’s trade structure. “We are planning to revisit the base year for calculating the REER index to make it more realistic. We are considering FY2023-24 as the new base year,” the official said.
As part of the exercise, Bangladesh Bank will analyse exchange rates, inflation trends and trade flows involving 18 of the country’s major trading partners. Officials believe the updated index will offer clearer insight into the taka’s position in global markets and support more informed policy decisions.
Economist Zahid Hussain welcomed the move but stressed the need for regular updates. He said REER is a key tool for assessing price competitiveness, although under a free-floating exchange rate regime it does not directly determine the exchange rate.
He also raised questions about how the index is being used in practice. “Is the central bank using the index to revise the undisclosed band of the crawling peg, or using REER data to purchase US dollars from the market?” he asked.
Hussain further urged Bangladesh Bank to disclose its REER calculation methodology and underlying data, saying greater transparency would help analysts better understand currency movements and market conditions.
