Bangladesh Implements Market-Based Exchange Rate Under IMF Pressure

Economic Desk

Dhaka, May 14, 2025: The Governor of Bangladesh Bank has announced the implementation of a market-based exchange rate system effective today, relinquishing government control over foreign currency rates. Under this system, the prices of the US dollar and other currencies will now be determined by market demand and supply.

This decision follows conditions set by the International Monetary Fund (IMF) to secure the 4th and 5th tranches of its loan program. Although authorities had previously claimed that such loans were unnecessary, they are now compelled to cede control over currency rates as part of the IMF’s stringent requirements.

The Governor stated that the forex market is now in a “cooperative environment,” but critics view this as an attempt to mask IMF pressure. Since 2023, Bangladesh has been under a \$4.7 billion loan program from the IMF, which required reforms in the exchange rate mechanism.

While the Governor emphasized the need for banks to act responsibly and ensure a vibrant interbank market, questions remain about the effectiveness of a \$500 million intervention fund and vigilance teams in preventing market instability.

Economic analysts have raised concerns about potential inflation and rising costs for essential goods, fuel, and raw materials due to fluctuating dollar rates. The IMF projects inflation could reach 10% in the 2024-25 fiscal year.

Increased exchange rates may also exacerbate the burden of foreign debt, which exceeded \$100 billion in 2024. Both the public and private sectors face higher repayment costs, further straining the economy.

Importers are likely to face significant challenges as rising dollar rates increase costs for fuel, machinery, and raw materials, adversely affecting industrial production and economic growth. Bangladesh’s foreign reserves, already under pressure from the Ukraine-Russia conflict, could face further depletion.

While exporters may benefit from a weaker taka by receiving higher returns per dollar, experts argue that this advantage is marginal compared to the broader negative impact on import-dependent industries.

Former World Bank economist Zahid Hossain described the move as detrimental, predicting heightened inflation and economic instability. Researchers at the Bangladesh Institute of Development Studies (BIDS) echoed these concerns, noting the lack of effective government plans to control inflation.

Although Bangladesh Bank has pledged to monitor market volatility, skepticism persists regarding the adequacy of intervention measures to counter potential manipulation or syndicate activity.

The decision to adopt a market-based exchange rate under IMF pressure is seen as a risky step for the country’s economy, with significant implications for inflation, import costs, and debt burdens. Both businesses and the public may face challenging times ahead.