Bangladesh Bank has revised one of the country’s most closely monitored indicators of external competitiveness, updating the real effective exchange rate (REER) index to more accurately reflect current economic conditions.
For the first time, remittance inflows have been incorporated into the REER calculation, highlighting the growing significance of overseas earnings in shaping the foreign exchange market. The index has also been rebased to fiscal year 2023-24, replacing the previous base year of 2015-16, to account for shifts in trade patterns, inflation differentials, and bilateral exchange rates over the past decade.
Officials at the central bank emphasise that the updated methodology aims to provide policymakers, businesses, and analysts with a more accurate signal on the taka’s valuation and Bangladesh’s true competitiveness in global markets.
“Previously, some critical components were either missing or underweighted,” a senior Bangladesh Bank official, speaking on condition of anonymity, said.
“We have now adjusted the weights within the basket to ensure the valuation is more realistic and practical.”
The revision also reflects changes in the country’s trade geography. China has overtaken India as Bangladesh’s largest trading partner and now carries the highest weight in the new REER basket. One Middle Eastern country has been removed as its trade share fell below 1.0 per cent. The updated basket now includes 17 currencies, collectively accounting for over 85 per cent of Bangladesh’s total trade.
| Key Changes in REER Basket | Previous Base Year (2015-16) | New Base Year (2023-24) |
|---|---|---|
| Base Year | 2015-16 | 2023-24 |
| Inclusion of Remittances | No | Yes |
| Largest Trading Partner | India | China |
| Number of Currencies | 17 | 17 |
| Trade Coverage | ~85% of total trade | ~85% of total trade |
Bangladesh Bank will implement the revised base year and methodology in the December 2025 REER and related indicator calculations. The choice of fiscal year 2023-24 as the new base is considered more representative of current economic realities, with reduced data distortions compared to earlier years.
Neighbouring central banks also periodically update their REER base years. Pakistan and India currently maintain 2015-16 as their respective base years (set at 100).
The REER is a key gauge of currency competitiveness. A reading above 100 suggests that the local currency is overvalued, potentially undermining export competitiveness, while a value below 100 indicates undervaluation and stronger international competitiveness. According to central bank data, Bangladesh’s REER stood above 106 in November 2025, signalling that the taka remains overvalued despite recent policy adjustments.