Moody’s sees Bangladesh taka weakening 4% as peg may be eased
Economy
Moody's Investors Service forecast the Bangladesh taka to decline 4% by June as limits on the currency may be eased, a move which it said could bolster the nation's dwindling foreign-exchange reserves.
Bangladesh Bank this month said it is evaluating a plan to introduce a crawling peg system for the local currency to keep it stable, which would be a step toward a flexible exchange-rate regime. The taka could trade at around 115 per dollar by the end of June, Moody's said, compared with 110 on Jan. 28.
"The introduction of the crawling peg would allow greater stability and predictability of the exchange rate, while further reflecting prevailing market forces compared to the current rate-fixing mechanism," said Marcus Yiu, analyst at Moody's in Singapore.
The falling reserves are putting pressure on Bangladesh officials to loosen their grip on the currency, which would help improve the current-account balance and ease the dollar shortage. In June, the nation pledged to allow the currency to float freely for the first time in the country's history, a key demand from the International Monetary Fund to keep its $4.7 billion loan program on track.
"Should successful implementation of the new regime allow a narrowing between the official rate and parallel market rates, it will allow greater capture of foreign currency flows and could bolster FX reserves that have deteriorated significantly over the past 1 to 2 years," Yiu said in an emailed response to questions.
The nation's reserves slid 12% to $22 billion in December from June, based on the valuation guidelines set by the IMF.
Other Moody's forecasts:
- Current-account deficit to narrow to about 0.3% of gross domestic product in fiscal year 2024 from 0.7% in previous year. The nation's fiscal year starts July 1.
- Moody's sees upside in remittances if official rates depreciate more than expected under the crawling peg, which would raise the value of foreign earnings in taka terms
Comments
While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.