Dhaka, Aug 28: Global rating agency Standard & Poor’s (S&P) has cautioned Bangladesh that further depreciation of its currency would mount domestic inflation pressures and make external debt servicing costs more expensive. Bangladesh liberalised further its trading mechanism in June 2022 and since then nominal exchange rate of Taka, the local currency, has depreciated by about 10 per cent against the US dollar, marking a notable shift in the country’s foreign exchange dynamics.
“Depreciation in the currency will add to domestic inflation pressures, and make external debt servicing costs more expensive,” the rating agency said in its latest research update.
The S&P said the measure weakened Bangladesh’s external profile following a marked rise in its current account deficit, driven by surging domestic demand and higher commodity prices.
“These trends have driven net outflows of foreign exchange from the economy, resulting in declining reserves and depreciatory pressure against the taka,” it said.
The S&P report came as the inflationary surge in Bangladesh tends to follow the trends in the movement of commodity prices in global and domestic markets.
The annual inflation rate in Bangladesh is underpinned by soaring prices of both food and non-food items while the Russia-Ukraine war and associated sanctions are also contributing to rising inflation in Bangladesh as global commodity prices surge.
