The Bangladeshi Taka (BDT) has been undervalued for two months in a row, according to a recent study conducted by Bangladesh Bank (BB), which suggests that the depreciation pressures on the currency have subsided.

The report indicated that the equilibrium exchange rate, derived from Real Effective Exchange Rate (REER) calculations, was recorded at Tk 121.55 in June 2025, which means the taka is undervalued by Tk 1.71 against the US dollar.

This study, which estimates the equilibrium exchange rates for Bangladesh, was authored by Deputy Governor Dr Md Habibur Rahman, Chief Economist’s Unit Director Dr Md Salim Al Mamun, Joint Director Mr Nur-E-Alom Siddique, along with a PhD candidate from Deakin University, Australia.

The report also noted that the Taka had been overvalued in previous years: by Tk 9.09 in June 2021, Tk 8.11 in June 2022, and Tk 0.22 in June 2023. By June 2024, the currency was slightly undervalued by Tk 1.11. Recent declines in the REER index were attributed to currency depreciation and decreasing relative prices.

The study emphasized that imbalances in exchange rates can exert pressure on foreign exchange reserves and heighten depreciation risks. Although the Taka faced significant depreciation pressure in 2023, the rate of depreciation moderated in the latter half of 2024, as authorities enacted a series of policy measures aimed at bolstering external sector stability.

“These measures have started to yield positive outcomes: the exchange rate is showing signs of stabilization, and foreign reserves are beginning to recover,” the report stated.

The report indicated that this advancement signifies enhanced management of balance-of-payments, a gradual reduction in external pressures, and a revival of market confidence.

Grasping the equilibrium exchange rate is essential for evaluating the sustainability of the external sector, competitiveness, and overall macroeconomic stability.

After the implementation of a fully market-driven exchange rate system in May 2025, the depreciation pressures significantly diminished by the close of June 2025. The Taka’s steadiness against the US dollar and the decreased misalignment from its equilibrium level demonstrate the success of the new system.

Additionally, the report highlighted that recent directives did not disrupt the exchange rate market but rather facilitated the prudent execution of policies by the central bank.

The study concluded that although there is no one-size-fits-all approach to calculating equilibrium exchange rates, it employed the widely recognized REER and BEER indices to assess exchange rate misalignment.

This methodology offers a reference point for policymakers and analysts to track currency stability and inform external sector policy.