Taka devaluation and the path ahead

The economy of Bangladesh is currently undergoing several reforms and adjustments. However, in recent times, currency devaluation and rising inflation have shaken households, small businesses and industries, forcing painful changes at every level. Many are asking how this devaluation affects the people, and how stability can be regained.

When the taka weakens, every dollar spent on imports like food, fuel and machinery becomes more expensive. In FY2023, the taka depreciated roughly 13.8 percent against the dollar. This raised import costs, fuelling inflation at home. In FY2024-2025 (July through May), it depreciated by another 3.94 percent, tightening the squeeze further.

Research shows that a 1 percent depreciation of the taka can push inflation up by about 0.2 percent. This is a clear example of how currency valuation affects prices. The Bangladesh Bank reported core inflation (excluding food and fuel) at 9.37 percent in June 2025, up from 8.53 percent a year earlier. Food inflation remains high at 7.39 percent. With overall inflation at 8.48 percent in June 2025, the rising cost of living is no longer a rumour. It is a reality.

As prices climb, especially for food, energy, transport and imported goods, household budgets are squeezed. Real wage growth has stagnated. For example, garment workers who once earned Tk 8,300 per month are now struggling as living expenses surge. They demanded Tk 23,000 in late 2023, but employers offered only Tk 12,500. With inflation at nearly 9.5 percent, even that was not enough to meet basic needs.

The structure of financial capacity and recent statements from many responsible positions point to worsening coordination in the financial sector. Non-performing loans are rising rapidly, capital adequacy is weakening, and foreign reserves are shrinking. These are all signs of growing instability. As the sector becomes fragile, access to credit tightens, reducing economic resilience. Prices of everyday goods rise, borrowing becomes harder and more costly, savings lose value, and the cycle of hardship deepens.

The central bank adopted a tighter monetary policy in FY2024 to FY2025. The repo rate was raised to 10 percent, the Standing Lending Facility to 11.5 percent, and the Standing Deposit Facility to 8 percent in an attempt to control inflation and stabilise the taka. A shift to a market-based and crawling peg exchange rate regime has helped align nominal rates with the real effective exchange rate, improving competitiveness and reserve stability.

In FY2024, the taka depreciated by 8.17 percent by June, and only 1.7 percent in the first half of FY2025. Remittances rose 28.7 percent in July to May FY2025, narrowing the current account deficit from $6.12 billion to just $0.43 billion. This helped raise reserves to $27.43 billion by April 2025. Policies such as expanding remittance channels and easing banking rules have supported the recovery of foreign exchange inflows.

Ultimately, financial stability depends on a stronger banking system that limits non-performing loans, ensures adequate capital, supports diverse financing, and improves portfolio management. Without meaningful reforms, a fragile banking system could quickly erode economic resilience.

If the taka falls another 10 percent tomorrow, inflation would likely rise by 2 percent or more, especially for food and fuel. The burden would fall heaviest on lower-income groups. Inflation is not just a number. It is the daily breakdown of budgets, hopes and futures.

As citizens, it is important to shift spending towards local products, adopt energy-efficient habits, and advocate for fair wages that reflect the rising cost of living. The slide of the taka reflects not only external shocks but also weak financial structures and slow policy action.

The solution lies in bold and coordinated reforms, a prudent central bank, stronger banking systems, diverse foreign exchange inflows and empowered households. If policy aligns with purpose and economics with equity, stability can be restored to the taka.

The writer is a senior banker