In response to either market pressure or advice from the International Monetary Fund, the central bank introduced the crawling peg exchange rate mechanism on 8 May.
The crawling peg system is new for Bangladesh. Generally, in this process, a middle rate is set to determine the exchange rate, along with upper and lower limits forming a band within which the rate can fluctuate. The market is regulated by adjusting this middle rate and band as needed.
In the two weeks since its enforcement, the crawling peg seems to have yielded positive results for the country’s dollar market. Banks are exercising more freedom in trading and there are indications of an easing of dollar liquidity.
Now is a good time to analyse how the system has achieved this and its potential for a balanced forex market in the upcoming months.
Upon introducing the mechanism, the central bank set the Crawling Peg…
