Bangladesh's exporters enjoyed a modest boost in December last as the country's real effective exchange rate (REER) edged down, easing pressure on the Taka and slightly improving its global competitiveness.
The latest central bank data suggest that while the currency remains somewhat overvalued, the gap has narrowed. The REER index fell to 102.11 in December 2025 from 103.55 in November.
The decline reflects both a technical update in the REER's base year to 2023-24 and a more favourable inflation differential with major trading partners, developments that could offer cautious optimism for trade and the foreign exchange market if stability is maintained.
The REER, a key measure of currency valuation against a basket of 17 major trading partners accounting for more than 80 per cent of Bangladesh's external trade, indicates that the Taka remains overvalued, although the margin has narrowed.
A reading below 100 generally signals improved export competitiveness, while a level above 100 suggests a relatively stronger domestic currency, making exports less competitive and imports cheaper.
Globally, policymakers treat the REER as a broad indicator of an economy's equilibrium exchange rate and aim to keep the index close to 100, as no alternative benchmark exists to assess currency misalignment.
Based on the December 2025 REER reading, the dollar's equilibrium rate was estimated at Tk124.86, compared with the prevailing market rate of Tk122.29, implying an overvaluation of the Taka by around Tk2.57, according to data released this week.
Officials familiar with the development said the central bank rebased the REER index from December using updated inflation data from peer economies, providing a more current assessment of external competitiveness.
"The old base year showed a higher REER. The new base offers a more practical and realistic assessment," said a central bank official, requesting anonymity.
Dr M. Masrur Reaz, Chairman and Chief Executive Officer (CEO) of Policy Exchange Bangladesh, said the revised base year enables a more accurate comparison between the equilibrium and nominal exchange rates, narrowing the gap.
He added that export and trade prospects could improve further if the new government takes steps to reduce the cost of doing business.
Dr Md Ezazul Islam, Director General of the Bangladesh Institute of Bank Management (BIBM), said the updated index also incorporates remittance inflows, which contributed to the recent decline in the REER.
"Stronger remittance inflows and a favourable balance of payments helped bring the index down in recent months," he said.
He added that the trend signals a positive outlook for the foreign exchange market and export competitiveness, although sustained macroeconomic stability will be essential to preserve these gains.
jasimharoon@yahoo.com
