Taka weakens as forex market faces renewed volatility

After remaining relatively stable for months, foreign exchange market has started showing renewed volatility, with the local currency taka weakening against the US dollar and most major foreign currencies.

The exchange rate of the US dollar has recently risen to Tk122.75 from Tk122, while the prices of the euro, British pound, Australian dollar, Chinese yuan and several other currencies have also increased significantly over the past four and a half months.

Economists and bankers said rising demand for dollars, global geopolitical tensions, higher import payments and panic buying by importers are putting fresh pressure on the country’s forex market, contributing to the depreciation of the taka.

According to the latest data from Bangladesh Bank (BB), the euro rose from Tk143.64 at the beginning of January to Tk144.64 on 12 May, marking an increase of Tk1 over the period.

Market analysts said the US dollar remains the principal currency for Bangladesh’s international trade and foreign transactions. 

As a result, fluctuations in the dollar directly influence the prices of other currencies in the domestic market.
They noted that ongoing geopolitical tensions in the Middle East, instability in global energy markets, rising import costs and fears of future dollar shortages have intensified pressure on the forex market.

At the same time, growing demand for dollars among banks and importers, slower export growth and temporary declines in remittance inflows have further contributed to market instability.

Dr Zahid Hussain, former lead economist at the World Bank, said the appreciation of other foreign currencies was also linked to movements in the US dollar.

“The dollar is the main currency for our foreign transactions. Naturally, when the dollar strengthens, it affects the prices of other currencies as well,” he told the Daily Sun.

He noted that recent forward sales of dollars had also contributed to the increase in the exchange rate and the weakening of the taka.

“Bangladesh Bank is currently following a managed floating exchange rate system. Although the central bank officially says it no longer fixes the dollar rate, it is still intervening in the market through dollar buying and selling to keep the exchange rate close to its desired level,” he explained.

BRAC Bank Managing Director Tareq Refat Ullah Khan said the recent rise in the dollar’s price was mainly driven by “panic buying”, despite the absence of any major surge in the global market.

“Many importers fear that dollars may not be available when future payments become due. As a result, banks are purchasing dollars from foreign exchange houses at higher rates to meet import demand,” he said.

BB purchases reach $5.81 billion

The banking regulator purchased $20 million from a commercial bank on 12 May at a cut-off rate of Tk122.75 per US dollar, according to a central bank spokesperson. 

With the latest intervention, total foreign currency purchases have reached $5.81 billion in the current 2025-26 fiscal year.

BB spokesperson Arief Hossain Khan said the move was part of ongoing efforts to stabilise the foreign exchange market amid rising volatility and pressure on the taka.

To contain market instability, the central bank has taken a series of measures, including discouraging commercial banks from engaging in excessive forward dollar bookings, which can create artificial shortages in the spot market.

Banks have also been instructed to sell dollars only against genuine import requirements and to manage forward contract risks using their own foreign currency resources.

Central bank officials said several banks recently increased forward dollar bookings in anticipation of further depreciation of the taka following geopolitical tensions in the Middle East. 

This raised concerns that excessive forward bookings could reduce dollar supply in the spot market and push exchange rates even higher.

A senior BB official said banks had been verbally cautioned against excessive forward bookings, warning that such practices could add pressure to the spot market and destabilise pricing.

Forward foreign exchange transactions are agreements to buy or sell a specified amount of foreign currency at a predetermined exchange rate on a future date. 

Businesses and financial institutions commonly use these instruments to hedge against exchange rate fluctuations.

The banking regulator is also actively intervening in the market through dollar purchases and sales when necessary, while maintaining incentives to encourage remittance inflows through formal banking channels.

Economists warned that continued appreciation of the US dollar and other foreign currencies could further raise import costs, particularly for fuel, industrial raw materials and consumer goods, adding fresh inflationary pressure on the domestic economy.

At the same time, they noted that exporters and remittance earners could benefit from a weaker taka.