After a year of pronounced volatility, the forex market is experiencing a period of stability, with the exchange rates of the dollar settling within the range of Tk123 to Tk124 for the past one and a half months. This stability has been instrumental in preventing a sharp decline of the taka.
Industry insiders attribute this newfound stability to a reduction in repayment pressure on private sector short-term loans and a conservative approach in opening letters of credit (LCs) against imports. Political stability, resulting from overcoming election-centric uncertainties, has also played a pivotal role in achieving macroeconomic stability, according to experts.
The influx of $2.10 billion in remittances in January, marking the highest monthly inflow in the past seven months, has further contributed to stabilizing the situation. Additionally, the Bangladesh Bank’s strategic selling of dollars from its foreign exchange reserves has played a role in maintaining price stability.
While the cash dollar price has remained steady at Tk123 to Tk124 for the last month, the Bangladesh Bank has expressed its expectation for no further fluctuation in exchange rates. A senior executive from the central bank mentioned that there are no plans for additional devaluation in the near future, pending the introduction of the newly announced crawling peg mechanism.
Despite the apparent stability, there remains a significant gap between the official and unofficial exchange rates, standing above Tk12. This divergence has led to remittances being diverted into informal channels. Notably, the officially declared dollar rate is Tk110 to Tk110.5 for buying and selling, but most banks have been dealing with remittances at rates above Tk122.
While the country witnessed a 26% devaluation of the taka in 2022, this rate slowed down to 2.8% in 2023. The Real Effective Exchange Rate (REER)-based exchange rate, which reached above Tk119 in October, has settled to Tk115 plus in January, indicating a reduction in devaluation pressure.
The Bangladesh Bank, in collaboration with the International Monetary Fund (IMF), is actively working on a crawling peg system for the local currency to maintain stability. Moody’s Investors Service forecasts a 4% decline in the Bangladesh taka by June, anticipating an easing of currency limits.
Despite the challenges, the Bangladesh Bank remains optimistic about increasing dollar inflow, with improving remittance earnings and a surplus in the current account balance. The central bank sees the surplus current account balance as a contributing factor to stabilizing the dollar price.
While challenges persist, the stability observed in recent months provides a foundation for the Bangladesh Bank’s cautious optimism, emphasizing the importance of increasing export and remittance earnings, as well as creating a more investment-friendly environment to address the dollar crisis effectively.