Bangladesh's REER Hits Seven-Month High as Inflation Weighs on Exports

The Real Effective Exchange Rate (REER) in Bangladesh has reached a seven-month high of 103.10 by June, up 0.67% from May's reading of 102.41. This upward trajectory began in March after the rate fell to 101.43 in February.

The REER's increase coincided with the taka-dollar exchange rate reaching Tk 122.95 per US dollar in June.

Market participants say that if the exchange rate had fully reflected market fundamentals, it would have been around Tk 126.65 per dollar in June. However, the central bank seems to have avoided a sharper depreciation due to its potential impact on import costs and domestic inflation.

Economists believe an overvalued exchange rate affects Bangladesh's export competitiveness. Dr Md. Ezazul Islam, Director-General of the Bangladesh Institute of Bank Management (BIBM), thinks higher inflation is the main reason behind the REER's increase.

Islam suggests that either bringing inflation under control or allowing the taka to depreciate further would help restore external competitiveness.