After seven months of implementing a crawling peg exchange rate system in spot purchases and sales of US dollars, the Bangladesh Bank (BB) is now considering increasing the mid-rate to Tk 119 from Tk 117 per greenback, according to central bank officials.

The Bangladesh Bank has incurred a loss of Tk 55 crore from its foreign exchange deal with Islami Bank centring the introduction of the crawling peg exchange rate system.

Economic reforms should not end here, though

Owing to a chaotic and volatile exchange rate, local exporters were desperate for the introduction of a floating exchange rate so they could draw more money and be more competitive.

Mansur, a former economist at the International Monetary Fund, said interest rates would rise. This may slow the economy further, but it is necessary to overcome the challenges.

Bangladesh yesterday made three major decisions to cushion the economy against critical risks such as stubborn inflation and depletion of foreign currency reserves.

Bangladesh Bank today introduced the crawling peg exchange rate system and allowed banks to buy and sell US dollars freely at around Tk 117. 

The crawling peg system for the taka is a delayed and, perhaps, inadequate response to the bleeding of forex reserves. Some economists suggest the central bank should go beyond this formula and open the exchange rate to market forces to stop the continuous erosion of reserves. Either way, exporters and remitters will celebrate more flexibility in the exchange rate.

Bangladesh will introduce a crawling peg system by next month to make the exchange rate more flexible and improve the foreign currency reserves, a key prescription from the International Monetary Fund.

BB sits with ABB, BAFEDA

The central bank has rolled out a plan to introduce an interim crawling peg system for the taka to regulate abrupt fluctuations of its value, paving the way towards a fully flexible regime in the future. 

BB's adoption of crawling peg as per IMF prescription will possibly rule out a market-driven exchange rate, as suggested

Its a system of exchange rate adjustments in which a currency with a fixed exchange rate is allowed to fluctuate within a band of rates.