Bangladesh's currency remains overvalued and impacts adversely the country's trade competitiveness with international trading partners, according to official statistics.
According to a Bangladesh Bank's latest report, the Bangladesh Taka is overvalued by more than 3.0 per cent or Tk 3.67.
The central bank of Bangladesh calculates the Real Effective Exchange Rate (REER) index, which stood at 103.01 in January. When converted using the exchange rate, the real exchange rate stands at Tk 125.67 against the US dollar and thus leaves a gap of Tk 3.67.
The central bank or Bangladesh Bank regularly updates the government on the nominal and real effective exchange rates of the taka against an 18-currency basket, which accounts for more than 85 per cent of the country's trade.
In economics, a REER value of 100 suggests trade competitiveness is balanced. Any value above 100 indicates an overvalued currency, making exports less competitive.
Central bankers told the FE that the taka remains overvalued, and efforts are being made to bring the REER down to 100, claiming that they achieved that goal in the recent past.
They point out that Bangladesh's inflation rate is higher than that of its trading partners, which is a major reason for the currency's overvaluation.
During the tenure of the previous central-bank governor, the taka was overvalued by Tk 6.0-7.0. "We are now closer to equilibrium," says one central -bank official, who requests anonymity.
He says while an overvalued currency impacts export competitiveness, the situation has improved over time.
Dr. Zahid Hussain, an independent economist, says that since the taka-dollar exchange rate is lower than the rate implied by the REER, the currency remains overvalued.
"This is mainly due to Bangladesh's higher inflation compared to its trading partners. As a result, our exports are relatively less price-competitive," he adds.
Bangladesh's inflation rate was nearly 10 per cent in January, significantly higher than that of its major trading partners.
China inflation in January was recorded at 0.5 per cent (Bangladesh's largest trade partner), India at 4.31 per cent (Second-largest trade partner) and Eurozone at 2.5 per cent.
Dr. M. Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, emphasizes that an overvalued currency affects trade competitiveness, particularly in export.
He says that Bangladesh's exports grew by 5.7 per cent in January to $4.43 billion but "it could have been much higher if competitiveness was fully in place."
The exchange rate of the Bangladeshi taka against the US dollar depreciated by 3.28 per cent during July-January of FY25, compared to 1.49 per cent in the same period of FY24, according to the Bangladesh Bank report.
As an import-dependent country, Bangladesh relies on imports for both domestic consumption and export production. "A sharp depreciation would significantly increase import costs," Dr. Masrur alerts.
To modernize its exchange rate and monetary policy, Bangladesh Bank introduced several reforms on December 31, 2024.
The central bank now publishes a daily reference benchmark based on the weighted average of freely -quoted exchange rates in market transactions.
To ensure increased transparency, authorized dealers must provide foreign-exchange -transaction data for amounts above $100,000 twice a day. They are also required to display exchange rates on digital screens and their websites.
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