The IMF staff mission has proposed a lower foreign currency reserves target for December and June next year, contingent on Bangladesh Bank’s adoption of the crawling peg method for exchange rate management.
The crawling peg is an exchange rate adjustment system that allows a currency with a fixed exchange rate to fluctuate within a specified range. This method combines the stability of fixed exchange regimes with the flexibility of floating exchange rate systems. It pegs the currency to a specific value while allowing it to adjust within a predefined range to respond to external market uncertainties.
During discussions with the visiting IMF staff mission, Bangladesh Bank expressed its willingness to adopt the crawling peg system but sought technical guidance on its implementation. This information was shared with BB and finance ministry officials.
Under the terms and conditions of the $4.7 billion loan program agreed upon with the Washington-based multilateral lender, Bangladesh Bank had committed to introducing a unified, market-based exchange rate from June. Although Bangladesh Bank officially introduced the market-based exchange rate in July, in practice, the exchange rate is set by the Bangladesh Foreign Exchange Dealer’s Association and the Association of Bankers, Bangladesh, based on unofficial guidance from BB.
The IMF mission, led by Rahul Anand, has expressed dissatisfaction with the current exchange rate mechanism, as it has not effectively increased the dollar reserves.
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