Export gains as taka appears 'highly competitive'

Bangladesh's currency now appears "highly competitive" as the real effective exchange rate (REER) of the taka against a 15-currency basket of global trading partners dropped below 100, particularly spurring export.
Measured by the central bank of Bangladesh against the currency basket, the REER stood at 99.79 in May. The exchange rate was 104.89 in April 2024.
This change is due to higher depreciation of the local currency recently against the US dollar with the relaxation of exchange-rate controls. "Such deep depreciation of the taka in one go has not been seen in many years before," says an analyst.
This gauge can be used to assess the equilibrium value of a currency. A decrease from 100 is an indication that its exports are getting competitive and its imports expensive.

The end result: its trade-competitiveness is on the rise. It is an indicator of the international competitiveness of a nation in comparison with its trade partners.
Among Bangladesh's top trading partners are mainly China, the European Union, and India. The REER considers the currencies and inflation readings of the top 15 trading partners.
Both India and the EU had 2.6-percent inflation in May last while in China it was much lower as the world's second-biggest economy was experiencing deflation.
Such valued BDT in terms of the REER will help enhance the competitiveness of Bangladeshi-made goods on the international market, bankers and economists believe.
Central bankers told the FE that such value of the BDT is due to sharp depreciation of the local currency against the greenback. The latest taka-dollar adjustment took place on May 08 under a reform drive when the taka weakened by shedding it's value by Tk 7.0 to Tk 117.
"Yes, it is impacting the export receipts as May export expanded to over $4.0 billion. It was less than $4.0 billion in April," one senior central banker told the FE.
Economists say this effective-exchange position will enhance the country's competitiveness in external trade.
"Definitely, this will enhance the competitiveness," says Dr M. Masrur Reaz, chairman of local think-tank Policy Exchange of Bangladesh.
He notes that the country's export receipt has been on the rise and it will accelerate further if the REER becomes supportive.
Dr Zahid Hussain, a former lead economist of the World Bank, feels that the "REER picture is now appears to be near-true."
He also told the FE correspondent that the inflation measurement raises many questions as to whether or not it is calculated genuinely.
He questions the representative CPI and its inflation measurement. "The REER will be more truly reflected once the inflation data of Bangladesh become more reliable," Dr Hussain says.
[email protected]