Bangladesh Bank's exchange rate policy change sparks taka freefall

This decision aligns with the introduction of the Crawling Peg Exchange Rate (CPER) system, reflecting a reform agenda seemingly influenced by IMF loan conditions.

The announcement, made during a Monetary Policy Committee (MPC) meeting chaired by central bank governor Abdur Rouf Talukder, also included the deregulation of interest rates to be fully market-driven, in line with IMF recommendations.

The sudden adjustment in the taka-dollar exchange rate follows the introduction of the crawling-peg system, aimed at reducing forex market volatility. Under this system, a Crawling Peg Mid-Rate (CPMR) of taka 117.00 per US dollar has been set, allowing scheduled banks to freely engage in buying and selling foreign currencies.

In tandem with the exchange rate adjustment, the Bangladesh Bank has also abolished the Six-Month Moving Average Rate of Treasuries (SMART) as the reference rate for determining lending rates, moving towards a market-based interest rate regime.

This shift enables banks and non-bank financial institutions to set interest rates based on market dynamics and customer relationships.

To anchor inflation expectations, the central bank raised the policy rate by 50 basis points to 8.50 per cent, leading to adjustments in the Interest Rate Corridor (IRC), with the Standing Lending Facility (SLF) and Standing Deposit Facility (SDF) rates also raised by 50 basis points each.

As per reports, economists view these monetary measures positively, anticipating stabilisation in the financial market, albeit suggesting more aggressive policy rate hikes even as they emphasised the importance of firm implementation to achieve desired outcomes, particularly in containing inflation.

Fibre2Fashion News Desk (DR)