FY24 in BB’s sight as revised REER base year

Bangladesh Bank (BB) is planning to revisit the base year for calculating the Real Effective Exchange Rate (REER) index to make it more realistic and representative of current market conditions, officials said.
The central bank currently uses FY2015-16 as the base year for calculating the REER index. However, officials noted that Bangladesh's import and export dynamics with its major trading partners have changed significantly since then. Against this backdrop, the banking regulator is considering FY2023-24 as the new base year.
REER measures a country's currency value against a weighted basket of its trading partners' currencies, adjusted for inflation, to reflect real purchasing power and external competitiveness.
An increase in the REER indicates a loss of export competitiveness, while a decrease suggests improved competitiveness. The index is widely used to assess currency alignment, trade flows and price competitiveness, with data published by institutions such as the International Monetary Fund and the World Bank.
A senior BB official, speaking on condition of anonymity, said the central bank currently uses FY2015-16 as the base year, although Bangladesh's trading patterns with major regional and global partners have evolved over time.
"As a result, 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.
Under the move, the central bank plans to analyse exchange rates, inflation trends and trade patterns of Bangladesh's 18 major trading partners worldwide.
The updated index is expected to help policymakers better understand the position of the local currency in the global market and frame more informed policies, the official added.
Former lead economist of the World Bank's Dhaka office Dr Zahid Hussain said updating the REER index is essential, but noted that it should be done on a regular basis.
He said the index helps assess a country's price competitiveness in the global market, although under the existing free-floating exchange rate regime it does not play a direct role in setting the exchange rate.
"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?" Dr Hussain questioned.
He further suggested that Bangladesh Bank make the REER calculation methodology public, including the data used, to help analysts better understand currency movements and market conditions.

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