Bangladesh’s currency became overvalued against the US dollar in July after two months of undervaluation, prompting fresh concerns over the country’s export and remittance competitiveness.

The real effective exchange rate (REER), which measures a currency’s value against that of major trading partners, rose to 101.14 in July, from 98.61 in June and 99.27 in May, Bangladesh Bank data showed on Tuesday.

Based on REER, the taka was overvalued by Tk 1.71 against the dollar, with the equilibrium rate estimated at Tk 121.13 while the market rate stood at Tk 122.84.

A REER reading above 100 indicates overvaluation, typically making exports less competitive and dampening remittance inflows, though imports become cheaper.

Central bank officials attributed the July increase to a weakening US dollar and higher domestic inflation relative to Bangladesh’s trading partners. “Our inflation rate was higher in July while our partners’ inflation eased,” a senior official said, adding that efforts were underway to keep the REER close to 100.

Economists warned that sustained overvaluation could undercut Bangladesh’s external earnings. “Export and remittances are very important for us. So we are trying to keep the exchange stable through different mechanisms,” said Dr Mohammad Akhter Hossain, chief economist of Bangladesh Bank.

Dr M. Masrur Reaz, chairman of Policy Exchange Bangladesh, said the country’s high inflation differential was a key driver of the higher REER, stressing the need for a balanced exchange rate strategy for an import-dependent economy.