Taka's real exchange rate gap widens

A former central bank governor told the Dhaka Tribune that such a wide difference of value might have a negative impact on export items and remittance inflow. According to the BB report titled “Indices of Nominal & Real Effective Exchange Rate,” the real exchange rate for the US dollar stood at Tk110.54 in March even though the central bank had estimated the rate to be Tk90.68. But as the US dollar is trading at Tk78.68 at the moment, the difference of value between the real and market currency exchange rate is currently Tk32.06. To put it into perspective, the difference used to be only Tk7 to Tk10 in the past. For example, in 2013, the real exchange rate was Tk87.90 compared to the US dollar. Bangladesh Bank officials are now conducting a study on why the gap between the real and the market rate was so high. Sources said the central bank has managed to keep the market exchange rate stabilised so far through market interventions like injecting or withdrawing dollar from the market. A source in the bank also told the Dhaka Tribune that Bangladesh Bank usually determines real and market exchange rates by comparing it to currencies of nine foreign countries and the European Union – with whom Bangladesh conducts almost 80% of its trade. The countries are: the US, the UK, Canada, Malaysia, China, India, Japan, South Korea, and Sri Lanka. Former central bank governor Salauddin Ahmed told the Dhaka Tribune that the Bangladeshi market exchange rate was effective in local and foreign transactions. But the real exchange should be considered to understand the true economic situation of Bangladesh. Local currency taka was now overvalued as its real exchange rate to US dollar crossed Tk110, he said, adding that it would definitely have a negative impact on remittance inflow. The lack of investment in the country has a major role in widening the gap between the real and market exchange rate and Bangladesh Bank should find the real cause behind that, the former governor said.