Moody’s Investors Service has forecasted that the Taka's value would go down by 4% by June later this year as the limit on the currency might get eased, a move which it said could bolster Bangladesh's dwindling forex reserves.
Moody’s predicted that the local currency could reach about Tk115 per dollar by the end of June, compared with Tk110 on January 28, according to a Bloomberg report.
The Bangladesh Bank is evaluating the introduction of a crawling peg system for the local currency in order to maintain stability, marking a shift towards a more flexible exchange rate regime.
A crawling peg system is a type of exchange rate regime where a country’s currency is pegged to another currency or a basket of currencies and the exchange rate is allowed to fluctuate within a certain range or at a predetermined pace.
The Bangladesh Bank in a monetary policy statement on January 17 said that the crawling peg system would be linked to a carefully selected basket of currencies within a predefined exchange rate corridor.
Since mid-2022, the Taka has been depreciating against the US dollar, which contributed to domestic inflation, as the cost of imports rose.
The Taka has been weakening due to a balance of payment (BOP) deficit leading to a significant reduction in foreign exchange reserves over the year, the MPS said.
Crawling peg system aims to regulate abnormal fluctuations in the taka’s value, paving the way for a fully flexible exchange rate regime in the future.
By setting a competitive equilibrium exchange rate at the midpoint of this corridor, the BB would establish a stable benchmark, it said
The central bank will retain its authority to intervene in the currency market to prevent the exchange rate from breaching the limits, the MPS said.
The system will be a transitional measure to shift to a market-based exchange rate system completely.
As there is a shortage of dollars, many import payments were delayed or renegotiated, giving banks more time to acquire the necessary foreign currencies.
Only a small number of banks hold a significant portion of the dollar reserves in Bangladesh, with many other banks experiencing a deficit in their dollar reserves.
Additionally, the central bank has been selling dollars to commercial banks, with more than $28 billion sold over the past 30 months.
This included $6.7 billion allocated to banks in July-December of FY24, $13.5 billion in FY23 and $7.62 billion in FY22.
As a result, the foreign currency reserves, according to International Monetary Fund guidelines, dropped to $20 billion on January 25, leading to a sharp rise in the exchange rate to Tk110 from Tk91 against the US dollar within a year.
