Bangladesh’s currency is showing signs of overvaluation as robust remittance inflows coincide with subdued import demand and sluggish private-sector credit growth, according to the central bank’s latest data.

The real effective exchange rate (REER) index, which measures the taka against a basket of 15 key trading partners, rose to 103.84 in August from 101.23 in July. A REER above 100 suggests the currency is stronger than its equilibrium level, making exports less competitive while reducing import costs.

Bangladesh Bank data show the dollar should be priced at Tk126.31 based on the August REER reading, compared with a market rate of Tk121.64, leaving the taka overvalued by Tk4.67. Officials said the central bank has purchased US$1.88 billion since July to narrow the gap.

“Bangladesh has adequate dollar inflows. We will continue buying to minimise the gap, but there will be no direct intervention in the market,” a central banker said.

Economists warn that the currency’s strength risks eroding export earnings. “We enjoyed a favourable position in recent months, but the situation is now becoming volatile,” said Dr M Masrur Reaz of Policy Exchange Bangladesh. He added that higher REER values could stoke inflation, though pressures may ease in the coming months.

Private-sector credit growth was 6.52% year-on-year in July, with a month-on-month contraction, underscoring weak investment demand. Bangladesh Bank chief economist Dr Akhtar Hossain said stronger private investment and foreign direct inflows are vital to restore balance.

Worker remittances rose nearly 27% to US$30 billion in FY2025, providing a key source of foreign exchange