Crawling peg system likely from 2024’s first quarter

Bangladesh is likely to introduce crawling peg system for the taka to regulate abrupt fluctuations of its value against foreign currency in the first quarter of this year, said a top banker today.

"We want to launch it in the first quarter of this calendar year. We think stability has come back to the foreign exchange market and speculation has reduced. This is good news for all," said Selim RF Hussain, chairman of the Association of Bankers' Bangladesh (ABB).

He shared the information after a meeting between the top officials of Bangladesh Bank (BB), the leaders of ABB and Bangladesh Foreign Exchange Dealers' Association (BAFEDA) yesterday.

In the monetary policy for the January-June period of 2024 declared last week, the BB said it would introduce the crawling peg system as part of the plan to move towards a market-based exchange rate regime in future.

The crawling peg is a system of exchange rate adjustments in which a currency with a fixed exchange rate is allowed to fluctuate within a band of rates.

Currently, only three countries -- Botswana, Honduras, and Nicaragua – use a crawling peg, according to the International Monetary Fund.

The BB said the crawling peg system will be tethered to a carefully chosen basket of currencies within a defined band corridor.

A competitive and representative equilibrium rate will be established at the midpoint of the corridor, allowing the exchange rate flexibility within these bounds, it added.

Hussain, also managing director and chief executive of BRAC Bank Ltd, said Bangladesh's taka has become more expensive in the face of rising interest rate resulting from monetary tightening by the BB.

The more it becomes expensive, the more people's tendency to move away to dollar from taka will reduce, he said.

The demand for dollar declined too because of falling imports, he said.

At the meeting, discussion also took place regarding increasing inflow of the foreign currency, including remittance in the country, to improve availability of foreign exchange, according to Hussain.