Bangladesh’s latest move to recalibrate its forex policies could help stabilize the taka after its underperformance compared to other Asian currencies in 2024, analysts suggest. The new approach, which includes a daily adjustment of the exchange rate, signals a shift toward a more flexible, freely floating currency. This policy builds on last year’s introduction of the crawling peg system, allowing the taka to move within a set range and thereby reducing its volatility.
Bloomberg data reveals that the volatility of the taka has decreased over the past six months, following a sharp spike last year. According to Young Kim, an analyst at Moody’s in Singapore, this new strategy aims to align the exchange rate more closely with supply and demand, as well as transaction data from banks, potentially leading to greater stability for the local currency. Kim also noted that the strategy clarifies the framework for foreign exchange intervention, an essential aspect of the reform.
So far in 2025, the taka has weakened by around 2%, making it the poorest performer among Asian currencies. This follows a dramatic decline of over 8% in 2024, marking the fourth consecutive year of depreciation. Domestic political unrest, which led to the exit of long-time leader Sheikh Hasina, exacerbated the situation.
Last month, Bangladesh Bank introduced a significant policy change, allowing foreign currency dealers to buy and sell at negotiable rates within a specified band. The central bank also began publishing a reference exchange rate twice daily and plans to implement an auction-based foreign exchange intervention strategy to stabilize the spot market.
This shift away from the previous fixed exchange rate system is part of broader reforms that were spurred by the political crisis in 2024. An interim government, led by Nobel laureate Muhammad Yunus, reached an agreement in December to release $645 million in funds from the International Monetary Fund (IMF). According to Kim, the IMF has long advocated for increased exchange rate flexibility, and the new policy is in line with recommendations from international financial bodies. This flexibility could also aid in the continued release of IMF funds.
However, risks remain, particularly from global trade tensions, which could further pressure the taka. Yunus, under pressure to schedule elections, is working to stabilize the economy and address mounting import bills. Hasnain Malik, Head of Emerging and Frontier Markets Strategy at Tellimer, emphasized that the government still appears focused on maintaining currency stability to mitigate the impact of imported inflation. Malik believes that the taka will likely stabilize as exports and remittances recover, inflation slows, and the IMF program progresses.
Despite these challenges, analysts are optimistic that Bangladesh’s forex reforms will bolster confidence in the taka and set the stage for more sustainable economic growth.
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