Currency Forecast - BDT: Further Weakening Ahead, But Outperformance In Total Return Terms - FEB 2018

BMI View : We continue to hold a bearish vi ew on the Bangladeshi taka in spot terms. Over the short-term, a sizeable foreign reserves pool will allow the Bangladesh Bank (BB) to control the pace of currency weakening. Over the long-term, the taka is likely to weaken further due to higher inflation and an overvalued real effective exchange rate, but higher interest rates vis-a-vis the US should see the BDT continue to outperform the greenback in total return terms.

Short-Term Outlook (three-to-six months)

The BDT has slid by about 1.0% against the dollar since our previous forecast in September, and is likely to continue on a gradual depreciatory trend. We see continued downside pressure on the currency as inflation remains elevated due to high food prices caused by domestic supply-side disruptions, as well as too-loose monetary policy that has resulted in a dollar crunch in the economy, as indicated by high USD demand from domestic banks. That said, a still-sizeable foreign reserves pool, which stood at around USD32.3bn as of early-November, will allow the Bangladesh Bank (BB) to continue guiding the BDT along a measured weakening trajectory.

Depreciatory Trend To Continue
Bangladesh - Exchange Rate, BDT/USD
Source: BMI, Bloomberg

This article is part of our South Asia coverage. To access this article subscribe now or sign up for free trial