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A strong Taka is signalled by REER, |
A news report divulged that Bangladeshi Taka's Real Effective Exchange Rate(REER) has strengthened/appreciated to 100 in March 2025. In January, it was 103 point somthing. REER is the weighted average of a country's currency in relation to a basket of major trading partners' currencies taking into account inflation prevailing [in] the country and trading partner countries. Taka's REER appreciation means we need less Taka to get 1 Trading Partner Currency (average of major trading partner currencies) from the market. That means value of Taka against major trading partner currencies strengthened/increased/ appreciated, not decreased!
If this is true ,then why there is no reflection of it on the official website of the Bangladesh Bank(BB)?BB website still [pegs] 1 USD at Tk 122. Meanwhile, googling USD-Taka exchange rate will show you that major foreign exchange houses offer Tk 121 point something for 1 USD. But earlier BB governor had claimed that exchange rate is evaluated daily. There is a mismatch. Following the imposition of reciprocal tariff,USD depreciated/weakened against major currencies. That is why 1 USD fetching Tk 121 point something not Tk 122!
Appreciation of Taka's REER is also a cause of concern. It indicates reduced competitiveness of Bangladeshi products in international market. In addition, import also becomes cheaper. Though depreciation pressure is low,BB can create an atmosphere for it. And it is pretty much in line with its ongoing objective.
IMF noted that forex reserve has stabilized but there is no sign that reserve is gradually growing month by month. BB can change the status quo by buying USD from the local market. It will increase the [demand] for USD at home and depreciate the local currency. Market conditions can easily deal with 10% depreciation. We do not know what will happen 3 months later when the pause on tariff will be lifted. So this is the high time for BB to intervene in the forex market to depreciate Taka against USD. Bangladesh Bank's own study acknowledges that real export declines in the wake of appreciation of REER.
Now, depreciation intervention is advantageous from the point of view of BB. It has to swell the forex reserve to get the next installments of the IMF credit package. Vietnam Dong, Rupee, Yuan all the currencies depreciated following the reciprocal tariff. Bangladeshi currency has not done it yet. It has to be appreciated first,as the REER tells, then it requires serious depreciation to make Bangladeshi goods more competitive. For that, BB's intervention is a must.
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