Bangladesh’s foreign exchange market stayed stable in August, but the country’s real competitiveness weakened. According to Bangladesh Bank data and its latest published report, the Real Effective Exchange Rate (REER) rose to 103.84 in August from 98.61 in June, a two-month increase of 5.3 percent.
According to Bangladesh Bank officials, the surge was fuelled by rising domestic inflation and a surge in remittance and export earnings, while import demand stayed weak. This combination strengthened the taka by about Tk 4, putting exporters under greater pressure in global markets.
The nominal exchange rate shifted only modestly, appreciating from Tk 122.30 per dollar at the end of July to Tk 121.69 at the end of August. Liquidity improved further as the US dollar weakened globally, but Bangladesh Bank stepped in to prevent excessive appreciation by purchasing $454 million in August alone.
Despite this effort, the taka still showed a 3.03 percent depreciation year-on-year against the dollar, reflecting longer-term softness.
Central bank interventions have been large in recent months. From mid-May to early September, the central bank purchased around $1.75 billion from commercial banks, including nearly $1 billion between mid-July and the end of August.
These purchases not only cushioned the exchange rate but also boosted reserves, which climbed to $26.18 billion (BPM6) in August from $24.78 billion in July, supported further by Asian Clearing Union deposits.
The overall market reflected stronger liquidity. Interbank spreads narrowed to an average of Tk 0.17 per dollar in August, while volatility remained subdued. However, trading activity slowed.
The central bank data shows that daily spot transactions dropped to $33.23 million from $40.75 million in July, while swap transactions slipped to $77.04 million from $86.94 million. Non-USD trades were marginal, totalling just $2.88 million equivalent in euros across four business days.
External sector performance remained supportive. Export earnings in July-August stood at $4.78 billion, up 10.3 percent year-on-year, with garments leading the growth. Imports grew 9.3 percent, with most being raw materials and consumer goods.
Meanwhile, remittance inflows surged to $4.90 billion, registering an 18.4 percent increase, supported by incentives, wider access to mobile and agent banking, and curbs on hundi.
Bangladesh Bank Executive Director Md Ezazul Islam told TIMES of Bangladesh that inflows had changed the balance of the market.
“We are seeing strong inflows from remittances and exports, while import demand is relatively subdued. As a result, the taka appreciated by about Tk 4, and exporters are now facing stiffer competition in global markets,” Islam said.He noted that the central bank had been intervening actively.
“Bangladesh Bank has been buying dollars consistently to stabilise the situation, and this effort will continue as long as inflows remain strong,” he said.
Looking ahead, Islam added that with ongoing interventions, the exchange rate is likely to edge higher in September.
