The local currency taka has officially depreciated against the US dollar after seven months as the central bank recently raised the reference rate for taka-dollar transactions by Tk 2.

The move comes amid increased volatility in the local foreign exchange market, with banks quoting remittance rates as high as Tk 129.

In response, the Bangladesh Bank (BB) adjusted the mid-rate of the crawling peg upwards to Tk 119 for spot purchases of the greenback by banks.

Following the mid-rate adjustment effective from January 1 this year, banks transacted US dollars at Tk 122 yesterday, up from Tk 120 on the first day of the year, according to central bank data.

In January last year, the inter-bank exchange rate was at Tk 110 per dollar.

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This means taka has depreciated by around 11 percent against the greenback over the past year.

On May 8, 2024, the central bank introduced the crawling peg system, setting the mid-rate at Tk 117 per dollar.

This system allowed scheduled banks to freely buy and sell US dollars around the mid-rate with customers and in interbank deals.

After the recent upward adjustment of the peg, the BB said that commercial lenders can now buy and sell dollars with a 1.5 percent to 2.0 percent fluctuation from the mid-rate.

According to the BB, the maximum exchange rate for remittance collection by banks will be Tk 123 per US dollar.

Importantly, the exchange rate for both remittance collection and export earnings will be the same.

As some banks in December quoted higher rates for remittance collections due to increased demand for the greenback to settle overdue letters of credit (LCs) and open new ones for Ramadan essential imports, the central bank issued a warning to commercial lenders against spurring exchange rate volatility.

The BB said that banks found to be contributing to foreign exchange market volatility would face financial penalties, starting from a minimum of Tk 10 lakh.

Banks were also instructed to operate within a reasonable band on both sides of the mid-rate.

The difference between buying and selling rates should not exceed Tk 1 per US dollar, according to the BB.