Finance & Economy | News & Insights

Bangladesh Bank adopting ‘crawling peg’

Published: May 7, 2024

Bangladesh will implement a crawling peg system in the next month to enhance exchange rate flexibility and boost foreign exchange reserves as per IMF guidance.

The ‘crawling peg’ is a method used to adjust the exchange rate of a domestic currency compared to a foreign currency. It allows the exchange rate to fluctuate within a set range, with fixed upper and lower limits to prevent sudden increases or decreases in value.

A senior official from the central bank disclosed that the crawling peg system is expected to be launched by June as preparations near completion. The IMF has been pushing for Bangladesh to adopt this system since November. Bangladesh Bank has notified the IMF about the impending implementation. Although the central bank announced the system in January, no significant progress has been made yet.

The central bank in Bangladesh introduced a market-based exchange rate on paper in July last year, but in reality, the rate is determined by the Bangladesh Foreign Exchange Dealers Association and the Association of Bankers, Bangladesh based on informal instructions from the Central Bank. In January last year, Bangladesh received a loan program of $4.7 billion from the IMF, and an IMF team is currently in Dhaka to assess the country’s economic situation and loan conditions before the third round of loan waiver. New or revised terms may involve lower reserve targets.

IMF’s Krishna Srinivasan stated the importance of a market-based exchange rate for stability in Bangladesh’s foreign transactions during a virtual briefing on April 30.

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