Bangladesh Hikes Rate and Introduces Crawling Peg

The central bank of Bangladesh hiked its key interest rate by 50bps to 8.5% in May of 2024, extending its monetary tightening momentum to curb stubborn inflation, and introduced a crawling peg system for its currency.

The new crawling peg system for spot purchases and sales of US dollars was set at the mid-range of BDT 117 per USD from BDT 110, compared to the interbank exchange rate of 110 prior to the central bank's decision, marking a transition away from the previous system of a more strict peg.

The move is expected to precede a free-float exchange rate, pressured by the central bank’s pessimism over the ability to maintain the peg as its dollar reserves deplete.