How far can the taka fall as BB moves for gradual devaluation?

The Bangladesh Bank has started allowing a gradual depreciation of the taka against the US dollar to manage pressure from rising global energy prices, with analysts indicating there is further room for the currency to weaken.

The exchange rate has already started to depreciate gradually since 8 March, as the dollar rose close to Tk123 after remaining stable at Tk122.30 for months.

Real Effective Exchange Rate (REER), measured based on 17 currencies and incorporating both inflation and exchange rate data of major trade partners, stood at Tk126 on 29 March, indicating that the central bank has room to devalue the taka by Tk3.24 to remain export competitive.

Moreover, the exchange rate band prepared daily by the central bank, based on currency movements of trading partners, shows an upper band of Tk130 and a lower band of Tk125. The upper band suggests that the Bangladesh Bank can still allow a 5.6% depreciation until the dollar reaches Tk130.

The exchange rate band, prepared following a formula recommended by the IMF, also suggests that the current exchange rate is below the lower band.

The band was introduced in December 2024 when the Bangladesh Bank implemented greater exchange rate flexibility in line with a staff-level agreement with the IMF. This band is not publicly disclosed and is used internally to monitor the foreign exchange market.

Under the IMF formula, the Bangladesh Bank is supposed to buy dollars when the exchange rate falls below the lower band and sell dollars when it exceeds the upper band.

However, the central bank stopped buying dollars through auctions in March due to the global oil price shock, while still allowing a slower-than-expected depreciation through price guidance.

It will also refrain from selling dollars from reserves unless the exchange rate exceeds the upper band, according to a senior central bank executive.