Weak Rupee,Strong Yuan And Bangladesh

Bangladesh faces opportunities and challenges When two currencies see major changes.

Opposing trends in the currencies of Bangladesh's two largest trading partners have implications for Bangladesh. In one year, Chinese Yuan appreciated around 5% against the US Dollar(USD) while Indian Rupee depreciated around 10% against USD. China and India are Bangladesh's biggest import sources. In 2024-25,Bangladesh imported $18.19 billion worth of goods from China. Meanwhile,Bangladesh imported $9.69 billion worth of goods from India in the given period. Bangladesh's export to China and India during this time were less than $1 billion and $1.57 billion respectively. Bangladesh faces a combined trade deficit of around $25 billion with the two countries. So exchange rate changes of Yuan and Rupee inevitably influence Bangladesh economy.

Rupee's sharp depreciation was more pronounced in the first six months of this year in the wake of war in the Middle East. Oil price increase raised significantly the import bills,increasing demand for dollar. Inflationary pressure lowered purchasing power of Rupee and made other currencies more attractive. Current account deficit and foreign investors' withdrawal of money from Indian market in a bid to invest in dollar-denominated assets led to large depreciation of Rupee. Fed's decision to not lower the policy rate and uncertainty stemming from war in the Middle East strengthened USD against other currencies (see "Why Is Indian Rupee Falling Against The US Dollar?",Bajaj Finance Limited,June 06,2026,https://www.bajajfinserv.in/usd-vs-inr-why-indian-rupee-falling-against-us-dollar).

Yuan's appreciation is attributed to China's huge external trade surplus, export competitiveness and internationalization of Yuan. Moreover, Chinese capital market is closed and investors cannot invest abroad on foreign stocks in times of uncertainty. So extra wealth generated in the economy gets invested into Yuan-denominated assets.China's diversified energy mix also played a role in the appreciation of Yuan. Recent trade understanding between China and the USA also made the Yuan stronger(see "Global Banks Raise Yuan Forecasts, Fuelled By China's Export Strength And Stable Us Ties", Reuters, May 18,2026,https://www.reuters.com/business/finance/global-banks-raise-yuan-forecasts-fuelled-by-chinas-export-strength-stable-us-2026-05-18/l).

Rupee's 10% depreciation poses serious risks to Bangladesh's RMG export. India's recent final talk on FTA with Britain further amplifies the risk. Depreciated Rupee plus FTA have the potentials to wipe out the Bangladeshi RMG items from British market. Furthermore, competitiveness gained through this unprecedented depreciation makes India an attractive destination for relocating manufacturing centers from China,where rising cost and trade restrictions on Chinese goods make relocation of some manufacturing units inevitable. Indian economy can absorb the transitory effect from 10% depreciation. So such depreciation poses real challenges to Bangladeshi export sector, where persistent high inflation keeps the policy rate high and shrinks subsidy.

Appreciation of Yuan brings opportunities as well as challenges. As Chinese RMG items become less competitive, some orders may shift to Bangladesh. In addition, as imported goods become cheaper in China, Bangladesh's RMG export to the country may rise. There is a growing pressure from Bangladesh to narrow the trade balance, which is tilted in favor of China. The pressure plus the strong Yuan will play a conducive role to increase Bangladesh's export to China. Meanwhile, strong USD and Yuan pose challenges too. Bangladesh has long been mulling financing the public and private projects in Yuan as USD credit becomes more costly. Strong Yuan also makes Yuan credit costly. Chinese foreign investment also faces some obstacles as Yuan credit relatively gets costlier than before. Moreover, investment bankers think that People's Bank of China may raise the required reserve ratio for foreign currency deposit accounts, curtailing dollar liquidity into Chinese market(see "Chinese Yuan Rises To Highest Level Against Basket Since 2022",Jacob Gu,Bloomberg News, June 01,2026,https://financialpost.com/pmn/business-pmn/chinas-yuan-rises-to-highest-level-against-basket-since-2022l). This may put an obstacle to Chinese investors planning to implement their investment projects abroad in USD. Only time will tell whether opportunities outweigh the challenges or vice versa.

Bangladesh can ill afford further shrinking of its export income. Already inflation in advanced economies plus tariff debate made a dent into our export earnings. Depreciation of Rupee and appreciation of Yuan bring serious issues to competitiveness, export market and foreign financing of local projects. Country is experiencing serious inflation so further depreciation of Taka is not plausible right now. Contingency plans need to be chalked out so that risks from behavior of two currencies do not make inroads into export earnings.

La Semaine Dernière A Mes Yeux

(20 juin --- 26 juin)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
20	Pain,Œuf,Pois blanc	Riz,Yardlong beans,Pabda,Lentil soup	Pain,Mutton Rezala	Litchi,Mangue,Banane
21	,Mutton Rezala,Yardlong beans	Riz,Mutton Rezala,Yardlong Beans,Gourde blanche	---	Jackfruit
22	Pain,Œuf	Riz,Ruhi,Moringa leaves, Lentil soup,Water spinach	Puffed rice,Payesh	Jaque,Jamun,Litchi
23	Pain,Papaye	Riz,Pabda,Vigna mungo soup	---	Mangue,Puffed rice

Fiscal Discipline For Monetary Targets

Keeping budget deficit below threshold value Saves from danger coming out of the blue.

Govt has presented Tk 7.38 trillion budget before the parliament for FY 2026-27. The size of annual development program is Tk 3 trillion while the budget deficit is Tk 2.43 trillion, 3.47% of GDP.

As govt does not signal any change to policy rate, the sheer size of budget indicating larger govt spending is likely to complicate its monetary goals. Govt aims to contain the inflation at 7.5%,which is higher than 9% at this moment. Earlier govt announced a stimulus package of Tk 600 billion,committing at least Tk 30 billion annual support,which is a monetary expansion amid tighter monetary policy.

Tighter monetary policy requires similar fiscal fine-tuning in order to attain the inflation target. In this light how this budget plus the stimulus package,surprisingly organized by the central bank, will help bringing down the inflation calls for serious explanation.

Luckily, for the govt,ease of tensions in the Middle East means saving the subsidy for extra oil price. But the bad news is NPL is piling up. In three months of this year,NPL increased to 32% and became Tk 5.88 trillion or $48 billion ($1 USD= Tk 122)(See "Defaulted Loans Climb To Tk 588,704cr By March", The Daily Star,June 02,2026,https://www.thedailystar.net/business/news/defaulted-loans-climb-tk-588704cr-march-4188866). When the govt assumed office NPL was $34 billion. First two years for the govt are the right time for reforms if govt is comitted. So far govt stance oscillated between reform commitments and political goals. There is no sign of monetary and fiscal discipline. Sometimes regulatory body is committing blunder. Appointment of a chairman to a trouble-ridden bank and later revoking that decision and dissolution of the board of that bank cost the central bank liquidity support of Tk 25 billion. Govt has to deal with trouble-ridden banks and the NPL. How this can be done depends a lot on regulatory discipline.

Containing the inflation to the desired [level], monetary and fiscal discipline and a low budget deficit can lead to a stable economy. Govt revenue target is Tk 6.95 trillion while revenue deficit widens each year. In this backdrop larger budget deficit means we have to borrow more from abroad and banks. Keeping the budget deficit low should be another major policy criteria. In 2021, budget deficit was 6.2% of GDP. It became 4.6% in 2024. Last year it was 3.6% of GDP. For 2027, it is projected to be 3.7%(Source:Wikipedia, Trading economics, CPD).

Budget Deficit

Year	Deficit (% of GDP)
2021-22	6.2
2022-23	5.5
2023-24	5.2
2024-25	4.6
2025-26	3.6
2026-27	3.7(projected)

Fiscal discipline helps attaining the monetary goals quicker and guarantees macroeconomic stability. Following the 1998 financial disaster, Indonesia literally copied the Maastricht Treaty on budget deficit and made a law to keep the budget deficit below 3%. It enjoys the benefits over the years. The Maastricht Treaty or the Treaty On European Union obliges member countries to keep inflation rate no more than 1.5% higher than the average of three member countries with lowest inflation, to keep budget deficit below 3% of GDP, to keep govt debt below 60% of GDP,to keep the exchange rate of national currency within the margins set by the European Monetary System for 2 years and to keep nominal interest rate no more than 2% higher than in three member countries with lowest inflation(see Maastricht Treaty, Wikipedia,https://en.wikipedia.org/wiki/Maastricht_Treaty).

This kind of fiscal discipline keeps govt spending in check,makes currency stable and helps monetary regulation easier. We need to make similar law in the parliament to keep the budget deficit below 3% of GDP and make sure no govt can change it.

It is interesting that govt embarks on big spending programs while the pace of revenue collection is sluggish and central bank unveils a monetary expansion program while a tighter monetary policy is in action. It is interesting to see how the central bank address the issue in its upcoming Monetary Policy Statement. Point is govt has yet to establish monetary and fiscal discipline. But it is unveiling political programs that have the potentials to prolong the recovery.

La Semaine Dernière A Mes Yeux

(13 juin --- 19 juin)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
13	Pain,Œuf	Riz,Feuilles de Moringa,Aïr poisson,Œuf	---	Puri,Mangue,Litchi,Jamun
14	Pain,Gourde serpent,Œuf	Riz,Purée de noix de jaque,Purée de cumin noir,Crevette,Soups aux lentilles	---	Mangue,Litchi,Jaque
15	Pain,Œuf	Riz,Feuilles de Moringa,Aïr poisson,Œuf	---	Puri,Mangue,Litchi,Jamun
16	Pain,Pois blanc,Œuf	Riz,Sec latya avec noix de jaque,Yard long beans,Poulet,Soups aux lentilles	---	Mangue,Datte,Pois chiches,Riz gonflé
17	Paratha,Pois blanc,Œuf	Riz,Yardlong beans,Sec latya avec noix de jaque, ,Taro,Ruhi poisson,Soupe aux lentilles	---	Riz gonflé,Mangue
18	Pain,Pomme de terre,Œuf	Riz,Sec latya avec noix de jaque,Pomme de terre,Courge amère avec crevette	---	Mangue,Litchi,Riz gonflé,Lait
19	Pain,Courge amère,Œuf	Riz,Épinard malabar,Sec latya avec Haricot rpuge, Pabda poisson	Riz gonflé,Courge amère	Litchi,Mangue

Flaws In The Leather Industry

Lack of certification and flaws in design Hold back the leather sector from doing fine.

Grievance of rawhide traders and rotting of unsold rawhide have become a recurrent image after Eid al Adha, when millions of animals are slaughtered in a religious ritual. This year is no different. Despite Bangladesh being the top Muslim majority country where highest number of animals is sacrificed during Eid, its leather export is still hovering around $1 billion. This year 9.3 million animals were slaughtered and 3.1 million rawhides were destined to rot near road side. This is a govt furnished data.

The reason for stagnating leather export is bizarre. Government relocated most of the tanneries at tannery estate,built by the govt,in Savar. Later it was found that its Central Effluent Treatment Plant (CETP) does not meet the criteria,set by EU, to deal with chromium laden sludge(see "Compliance Failure Costs The Bangladesh Leather Sector Up to $10 billion",Shafiun Nahar Elma,Textile Today,January 01,2026,https://textiletoday.com.bd/compliance-failure-costs-the-bangladesh-leather-sector-up-to-10-billion). This failure in compliance leads to [postponement of] Leather Working Group (LWG) certification, which is crucial to get international clients. In addition, LWG certification is needed at various levels in the industry including traceability of leather,use of chemicals etc. More than 50% of our tanneries are not compliant.

UNDP in a study titled "Investing In Bangladesh's Leather Industry: Challenges & Solutions" finds that lack of environmental compliance costs export earnings between $5 billion and $10 billion annually. Lack of certification results in 30% or 40% lower prices for leather in international market.

What is interesting LWG certification issue pushed Bangladesh to sell its wet blue leather to China at a lower price. Bangladesh's leather industry is now heavily reliant on Chinese buyers for its leather export. This increasing reliance blocks us from getting a competitive export price. China emerges as a price setter for our leather industry in the [wake] of LWG certification issue. This status quo needs to be changed.

UNDP study suggests that resolving the certification issue and additional investment between $300 million and $400 million [in product diversification] will bring $5 billion worth of leather export earnings by 2032.

Bangladesh needs to alter image of exporter of raw materials and should emerge as exporter of high-end finished goods. In that endeavor leather industry offers a high potential. Some design flaw in infrastructure,lack of awareness in certification issues and lack of investment in product diversification are holding back the industry from taking off.

La Semaine Dernière A Mes Yeux

(06 juin --- 12 juin)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
06	Pain,Œuf	Riz,Épinard malabar,Pama croaker	---	Puri,Mangue,Litchi,Chocolat
07	Paratha,Œuf	Riz,Ruhi,Épinard malabar	Riz gonflé,Lait	Mangue,Litchi,Chocolat
08	Paratha,Œuf,Pomme de terre	Riz,Louffa,Petit poisson	Riz gonflé,Soupe aux lentilles	Puri,Litchi,Banane
09	Pain,Œuf,Papaye bhaji	Riz,Aïr poisson,Épinard d'eau	Riz gonflé,Pois chiches	Mangue,Litchi,Banane
10	Pain,Œuf,Papaye	Riz,Soupe aux lentilles,Petit poisson	Riz gonflé,Pois chiches	Mangue,Litchi,Banane
11	Pain,Gourde bouteille,Œuf	Riz,Petit poisson,Yardlong beans	Riz gonflé,Lait,Banane	Sucreries,Jamun
12	Pain,Œuf,Yardlong beans	Riz,Aïr poisson,Feuilles de Moringa,Yardlong beans	Riz gonflé,Soupe aux lentilles	Sucreries,Jamun,Litchi,Mangue,Patate douce

La Semaine Dernière A Mes Yeux

(30 mai --- 05 juin)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
30	Pain,Banane	Riz,Gourde bouteille	---	Banane,Mangue,Riz gonflé
31	Patate douce,Œuf	Riz,Ruhi,Gourde bouteille, Courge amère,Soupe aux lentilles	Khichudi,Paratha,Firni,Atchar	Mangue,Gâteau, Banane
01	Pain,Œuf,Gourde serpent	Riz,Poulet,Gourde bouteille, Courge amère,Soupe aux lentilles	---	Mangue,Banane,Riz gonflé,Litchi,Jamun
02	Paratha,Gourde bouteille,Œuf	Riz,Ruhi,Tige de taro,Soupe aux lentilles	---	Banane,Mangue,Riz gonflé,Pois chiches, Jamun
03	Paratha,Œuf	Riz,Ruhi,Yardlong beans,Soupe aux lentilles	---	Mangue,Litchi, Riz gonflé, Payesh
04	Riz gonflé, Lait	Riz,Gourde bouteille, Purée de pomme de terre,Œuf,Soupe aux lentilles	Fried rice,Poulet,Légumes	Mangue, Litchi, Gâteau
05	Pain,Payesh	Riz,Gourde bouteille,Taposhe poisson,Épinard malabar,Soupe aux lentilles	---	Mangue,Litchi