Decoding the economic impact of BDT/USD movements

In 2024, we have seen the highest devaluation of the Bangladeshi taka (BDT) against the United States dollar (USD). The exchange rate between the BDT and the USD significantly influences various facets of business operations in Bangladesh, including import and export costs, foreign investment, profitability, and inflation. Incorporating statistical data from authoritative sources provides a clearer understanding of these impacts. In 2000, the exchange rate was approximately BDT 52 per USD.

Ten years later in 2010, it rose to BDT 69 per USD. On December 27, 2024, as per Bangladesh Bank, the amount was 120. A crawling peg exchange rate was introduced in May this year, allowing banks to buy and sell US dollars freely within a mid-range of Tk 117. However, it rose to 127 plus or minus in the curb market.

A weaker taka makes imports more expensive, increasing costs for businesses reliant on foreign goods. The export-oriented industries benefit from enhanced competitiveness, as Bangladeshi goods become cheaper for international buyers.

However, we have historically seen that international buyers adjust buying prices according to the movement of the exchange rate.

Naturally, on the counter-narrative, appreciation of the taka reduces import costs, benefiting businesses reliant on foreign raw materials. It may also reassure investors about the economic strength of the country. However, it hurts export competitiveness, as Bangladeshi products become more expensive for foreign buyers.

Unfortunately, we have seen depreciation of taka for a while now. It makes investments in Bangladesh more attractive in local currency terms, enticing foreign investors.

However, excessive depreciation can raise concerns about economic stability. Bangladesh’s foreign exchange reserves, as per the last published amount on the Bangladesh Bank website, are approximately $24.35 billion in November 2024.

On a worrisome level, the Inflation reached 11.38 percent in November 2024, driven by rising import costs and currency depreciation, according to the Bangladesh Bureau of Statistics. To stabilise the economy, the Bangladesh Bank raised its repo rate to 10 percent, aiming to curb inflation and support the currency. However, higher interest rates have increased borrowing costs for businesses.

We have seen the impact of the increased rate of borrowing for project finance in the drop in the percentage of private sector credit growth. This is paradoxical, as private sector investments will be crucial to overcoming the economic crisis we face as a nation.

Going forward, businesses can mitigate exchange rate risks through hedging strategies to offset potential losses. They can also diversify sourcing and markets to reduce reliance on any single currency and implement flexible pricing models to adjust for currency fluctuations.

The BDT/USD exchange rate is a critical factor influencing the Bangladesh economy. Its effects are wide-ranging, from importers grappling with rising costs to exporters capitalising on competitiveness. By staying informed through reliable data from sources such as the Bangladesh Bank, Bangladesh Bureau of Statistics, and Trading Economics, businesses can navigate these challenges effectively, maximising opportunities and minimising losses.

The writer is a former president of the Dhaka Chamber of Commerce & Industry (DCCI)