Taka edges closer to its equilibrium level against the US dollar and the subdued local currency helps improve Bangladesh's global trade competitiveness by way of lowering product prices.
The real effective exchange rate (REER) index stood at 101.43 in February 2026, down from 102.02 a month earlier, latest central bank data showed.
It signifies that there was an improved external competitiveness after a prolonged period of currency overvaluation.
A reading of 100 is widely considered benchmark for exchange-rate equilibrium, where the country's trade competitiveness is balanced.
Based on the index, the implied equilibrium exchange rate for February suggests the dollar should have been traded at Tk124.05.
The currency was, however, exchanged at around Tk122.30 during the month, leaving the taka about Tk1.75 stronger than its equilibrium level.
A REER value above 100 indicates an overvalued currency, which can erode export competitiveness by making goods more expensive in global markets.
In its latest report, Bangladesh Bank said the easing in the REER reflected improved price competitiveness, driven by relatively favourable inflation differentials between Bangladesh and its major trading partners.
The central bank compiles the REER against a basket of 18 currencies representing more than 85 per cent of the country's total trade, alongside nominal and nominal-effective exchange-rate indicators.
A senior Bangladesh Bank official says methodological changes, including an updated base year and the incorporation of remittance inflows, have also influenced the index.
"As remittance inflows increase, they have a measurable impact on the REER," the official explains.
The official also says inflation trends in key trading partners, particularly China and India, also played a role.
Rising consumer prices in both economies have narrowed the inflation gap with Bangladesh, contributing to the local currency's relative adjustment.
Officials have said during the tenure of former central bank governor Abdur Rouf Talukder, the taka had been overvalued by as much as Tk6-7 against the dollar.
Dr Zahid Hussain, an independent economist, says, "Persistently higher inflation in Bangladesh compared with its trading partners had been a key driver of the earlier overvaluation (of taka)."
However, recent shifts -- including rising inflation in major partner economies and stronger remittance inflows -- have helped narrow the gap.
Bangladesh Bank moved to a more market-based exchange-rate regime on May 14, 2025, as part of broader efforts to modernise its monetary policy framework and allow greater flexibility in currency pricing.
jasimharoon@yahoo.com