A Stronger Taka Is Quietly Undercutting Bangladesh's Export Edge, Just as Shipments Hit a Record

A Currency Getting Stronger at an Awkward Time

Bangladesh's taka has been doing something unusual for a currency belonging to a country running double digit inflation: getting stronger. The taka closed August at Tk121.61 per US dollar, having firmed up rather than weakened over the month, even as domestic inflation sat close to 9 percent against roughly 2 to 3 percent in the economies of Bangladesh's main trading partners. Bangladesh Bank's Real Effective Exchange Rate index, which measures the taka against 17 major trading partner currencies after adjusting for relative inflation and trade volumes, climbed 1.39 percent in August to 105.37. A reading above 100 signals an overvalued currency, and this was already the continuation of a trend: the REER had risen 1.28 points to 103.93 in July, when the nominal rate stood at Tk123.98 per dollar and the taka had depreciated only a modest 0.35 percent against the dollar between June and July, even as the Indian rupee fell more than a full percentage point over the same stretch.

Put plainly, Bangladesh's currency has been gaining real purchasing power against its trading partners for at least two consecutive months, at precisely the moment its domestic prices are rising faster than almost anywhere it trades with. That combination is not an accident of the market finding its natural level. Economists and even officials inside Bangladesh Bank describe it as a symptom of a currency that is not being allowed to adjust as fast as the underlying inflation gap would suggest it should.

Indicator	Jul 2026	Aug 2026
Taka per US dollar	Tk123.98	Tk121.61
Real Effective Exchange Rate (REER)	103.93	105.37
Monthly REER change	+1.28 points	+1.39%

Why an Overvalued Taka Is Not Good News for Exporters

An appreciating, overvalued currency sounds, on the surface, like a sign of strength. In practice, for an economy as dependent on garment exports and remittances as Bangladesh's, it works against the country's core competitive advantage. A stronger taka means every dollar an RMG exporter earns converts into fewer taka, while production costs at home, wages, utilities, rent, keep climbing with domestic inflation. That squeeze on margins is compounded by the fact that competitor manufacturing economies have, in many cases, let their own currencies depreciate faster, meaning Bangladeshi goods are quietly becoming more expensive relative to the competition even without a single policy change on either side of a trade negotiation. One senior Bangladesh Bank official, speaking to reporters without being named, put it bluntly in comments reported back in August: the central bank should consider depreciating the currency given how far the REER has surged, and the export earning sector could face real problems if the taka remains overvalued. Exporters themselves have reportedly pushed the government to consider devaluation, though they have largely done so without going on record.

The timing makes the stakes unusually visible. Bangladesh's exports actually climbed 6.3 percent to 13.1 billion dollars in the first quarter of FY27, with September alone up 8.5 percent, a rebound that followed a surprising dip in July. Readymade garments, still the backbone of that growth at over 10.5 billion dollars, posted solid if uneven gains, while pharmaceuticals, jute goods, and light engineering grew faster off a smaller base and shipments to Turkiye more than doubled. That export strength is precisely what a persistently overvalued taka puts at risk going forward: the REER data suggests the currency has been getting less competitive for exporters in the very months when export volumes were recovering, which raises an uncomfortable question about how much of that recovery can be sustained if the exchange rate keeps moving the wrong way for shippers even as the headline growth numbers look encouraging.

A Central Bank Caught Between Two Pressures

Bangladesh Bank's reluctance to simply let the taka slide is not without its own logic. A weaker taka would make imports, including the fuel and fertiliser Bangladesh depends heavily on from abroad, more expensive at a time when food and energy costs are already a major driver of the inflation the country is trying to bring down, a point underscored by data showing inflation actually ticked back up to 8.34 percent in September after three months of easing. Depreciating the currency to help exporters could, in other words, worsen the exact price pressures squeezing households that policymakers spent the summer trying to contain. It is a genuine bind: hold the taka steady or let it drift stronger, and exporters lose ground to foreign competitors; let it weaken toward where the REER suggests it should sit, and imported inflation gets a fresh jolt just as the headline numbers were starting to look manageable.

There is no clean resolution visible yet. Unnamed central bank officials have indicated that further depreciation will likely be needed eventually to bring the taka back toward where market fundamentals suggest it should trade, but no timeline or specific target rate has been made public. In the meantime, the REER keeps climbing, both July and August registered gains, which suggests whatever adjustment is coming has not yet started in earnest.

A Currency Still Finding Its Footing

Context matters here. Bangladesh Bank has spent the past couple of years shifting the taka away from a fixed, tightly managed peg toward a more market determined, crawling arrangement, a transition meant to let the exchange rate absorb economic shocks rather than forcing the central bank to burn through foreign exchange reserves defending an artificial level. That shift was itself a response to years in which an overvalued, administratively managed taka had drained reserves and fueled a persistent dollar shortage. Measured against that recent history, a REER sitting above 100 and climbing is a sign the new, more flexible system has not yet fully settled into a level consistent with the country's inflation differential against its trading partners, and that the central bank is still managing the pace of adjustment rather than leaving it entirely to market forces.

The exchange rate question also cannot be separated from two other threads in Bangladesh's external accounts this year. Remittances, which alongside garment exports are the other pillar propping up the taka's value, have been volatile, a sharp slowdown in September gave way to a rebound in early October, and any sustained strengthening of inward remittance flows would itself tend to support a firmer taka, adding to the very appreciation pressure that is now worrying exporters. At the same time, the trade deficit has been widening sharply this fiscal year on the back of a surging fuel import bill, a dynamic that would normally argue for a weaker, not stronger, currency to help rebalance the trade account. That the taka has appreciated anyway, even as the trade gap widens, is itself a sign that something other than pure trade fundamentals, most likely central bank intervention or capital inflows tied to the government's recent push for foreign investment and bond financing, is keeping the currency firmer than the underlying trade position would otherwise justify.

For an export sector that just posted its strongest quarterly growth in recent memory, the message from the currency markets is a quietly uncomfortable one: the ground underneath that growth may be shifting in a direction that makes the next quarter considerably harder to repeat. Whether Bangladesh Bank chooses to let the taka depreciate gradually to relieve that pressure, or continues to prioritise containing imported inflation over export competitiveness, will likely be one of the more consequential policy calls of the fiscal year, and one that, for now, remains unresolved.