Taka sees biggest devaluation in a single day, dollar rate raised by Tk7

The Bangladesh Bank has raised the dollar price to Tk117 from existing Tk110 through introducing the crawling peg exchange rate mechanism.

From now on, the bank will buy and sell dollars considering Tk117 as the mid rate.

The central bank took the decision at a meeting of the monetary policy committee meeting on Wednesday (8 May).

The committee also decided to end the SMART lending rate mechanism.

Now, banks can set the lending rate based on the demand and supply of dollars, according to a circular issued after the meeting.

The crawling peg is a system of exchange rate adjustments in which a currency with a fixed exchange rate is allowed to fluctuate within a band of rates. The method fully uses the key attributes of the fixed exchange regime, as well as the flexibility of the floating exchange rate regime.

On 5 May, Bangladesh Bank Governor Abdur Rouf Talukder said the central bank will adopt a market-based interest rate and apply a crawling peg system to fix the foreign exchange rate.

He said the central bank is working with prominent economists and bankers to prepare a contractionary monetary policy measure to curb inflation and restore macroeconomic stability.

Earlier on 2 April, the World Bank had said the crawling peg would need to be a market-clearing exchange rate mechanism that reduces the gap between the formal and informal exchange rates.

“This would help rebuild external buffers by attracting remittances through formal channels, making informal channels less attractive, and reducing the financial account deficit by expanding trade credit and other forms of external financing,” it said in its latest Bangladesh Development Update report.

Meanwhile, the International Monetary Fund has been advocating for a market-based dollar rate.

The IMF imposed several conditions against the $4.7 billion loan facility over a three-and-a-half-year period in January 2023. Bangladesh has received two installments of the loan by fulfilling almost all the conditions except the reserve.