B Mirror Report:  Bangladesh’s Real Effective Exchange Rate (REER) index increased in March 2026, pointing to a modest decline in the country’s external trade competitiveness, mainly due to higher domestic inflation compared to its major trading partners.

According to the latest data, the REER stood at 102.78 in March, marking a rise of 1.43 points from February. The increase indicates that the local currency remains relatively overvalued.

The REER index tracks the value of the taka against a basket of currencies from 17 key trading partners, which together account for more than 80 percent of Bangladesh’s total external trade. Typically, a REER value below 100 suggests stronger export competitiveness, while a figure above 100 reflects a stronger domestic currency, making exports less competitive and imports relatively cheaper.

Economists consider REER a broad benchmark for assessing currency alignment, with policymakers generally aiming to keep the index close to 100 to maintain balanced trade conditions.

Based on the March reading, the indicative exchange rate for the US dollar was estimated at Tk 126.03, compared to the prevailing market rate of Tk 122.62. This suggests that the taka is overvalued by approximately Tk 3.41.

A senior central bank official attributed the trend primarily to persistently higher inflation in Bangladesh relative to its trading partners. He also noted that ongoing geopolitical tensions, particularly in the Middle East, are adding pressure to currency dynamics.

The recent fuel price adjustments linked to the Iran-US-Israel conflict have further intensified inflationary pressures, which could continue to influence the REER in the coming months.

“The Middle East conflict has heightened exchange rate volatility, especially for oil-importing economies,” the official said.

In a move to bring more flexibility to the foreign exchange market, Bangladesh Bank allowed authorised dealers (ADs) from December 31, 2024, to trade foreign currencies at market-driven rates.

The central bank also introduced a new intervention framework and began publishing a daily reference exchange rate based on the weighted average of market transactions. Additionally, authorised dealers have been instructed to report all foreign exchange transactions of $100,000 or more twice a day.