Concerns With Exchange Rate Forecast

Taka loses value as per projection, Adequate policies may alter the situation.

In the World Economic Outlook, published in October 13,2026,the IMF projected a downgraded growth forecast for Bangladesh. GDP growth forecast is 3.2% for 2027 and 2.2% for 2028. If the prevailing situation at home and abroad changes dramatically ,then forecast on key indicators will also change. However, rising oil prices,swelling of Non Performing Loan (NPL), rising inflation and unemployment do not leave much room for optimism. Just as the growth is forecast to be downgraded in the outlook, so the exchange rate is forecast to be depreciated.

In November, the US dollar is being traded at Tk 134.70 in the Bangladeshi market. According to the IMF outlook, taka may be depreciated annually against the greenback by 0.56% in 2027, by 5.6% in 2028, by 12.12% in 2029, by 4.72% in 2030 and 1.93% in 2031. The largest annual depreciation is projected to take place in 2029. For 2027, there is nothing to worry about, but after that the fall in taka is projected to accelerate until 2030.

In the recent past , Bangladesh witnessed 40% depreciation in its currency, which was largely reflected by the pass-through effect in the inflation. In contrast to earlier situation, Bangladesh can easily absorb 5% or 10% depreciation of taka. But things become worrying if other indicators are taken into account with this projection of depreciation. Inflation is projected to be 10.9% in 2027. When you add the pass-through effect of even moderate depreciation to that inflation , the resulting pressure may become quite exorbitant for the households.

In addition, as govt debt service obligation rises and foreign commitment to finance budget deficits falls, reflected in financial account deficits, future depreciation complicates the matter by raising the debt servicing cost.

Moreover, cost of development project and investment is likely to rise due to depreciation. Though the projection of depreciation gives investors an indication where the currency is heading, unsteady exchange rate or too much fall taka in few years discourages investors to invest in Bangladesh. In that light, exchange rate volatility is likely to impact future investment that Bangladesh badly needs to offset the drop in foreign loan.

Luckily, there is continuous growth in forex reserve and remittances keep registering high records every month, insinuating no crisis in the supply of dollar. Yet escalation of tension in the Middle East can make a dent in the inflow of remittances as well as increase fuel price that will require additional dollar than usual to pay off the high fuel bill, putting further pressure on taka.

Hopefully, things will improve in future and projections will look better. Projections change with the change in situation in the ground. However, projections made are based on govt spending plan, money supply growth, financing reality, NPL stock, inflation, investment scenario, import, export and other data available at that moment.

Take govt spending for instance, govt programs require huge spending years down the line. The pay hike and bank support initiative lend credit to such spending possibility. Without clear financing initiatives, such spending tends to worsen inflation and exchange rate is the obvious victim. Now recently govt has scrapped some development projects and postponed ECNEC meeting that gives final nod to such projects. If govt continues and sticks to austerity measures, then it will manage to curb spending and future projections on key indicators including the exchange rate will improve dramatically.

Steady exchange rate for a prolonged period of time gives a good indication of good economic management and earns investors' trust. Too much fall in local currency in short period of time raises cost for implementing projects both for the public and private sectors. Depreciation, when moderate, is good for economy as it increases incentives for exporters and remitters to bring the foreign currency at home. However, as our debt servicing is increasing and import as percentage of GDP is larger than export, volatility in exchange rate raises debt servicing cost and import spending. So clearly there is a trade-off associated with depreciation. So policymakers have to decide what is pressing concern now and in the future. Based on that concern, course-corrective measures will be chalked out. And adequate policy measures will be reflected in future projections.