Bangladesh’s currency, the taka, has become overvalued due to rising domestic inflation compared to its key trading partners, potentially jeopardizing export and remittance inflows, say economists and business leaders.

The real effective exchange rate (REER) index surged to 104 in November 2024, up from 100.09 in September, signaling reduced trade competitiveness, according to Bangladesh Bank data.

Exporters fear that an overvalued taka could weaken Bangladesh’s position in global markets. The inflation rate hit 11.38% in November, contributing to the currency’s overvaluation.

Economists warn that high REER levels are making Bangladeshi goods less competitive, affecting export earnings. Dr. M. Masrur Reaz, Chairman of Policy Exchange Bangladesh, highlighted the risk of further declines in export receipts if the situation persists.

To address this, the central bank plans to introduce a more flexible crawling-peg system from January 12, with exchange rates published twice daily, allowing market forces to influence currency valuation.

Officials hope this adjustment will bring the REER closer to 100, supporting exports and remittance inflows. However, experts stress that controlling inflation is essential to stabilize the exchange rate and maintain trade competitiveness.