The Bangladesh Bank (BB) is not moving away from the crawling peg mechanism to a free-floating exchange rate regime right now to "avoid any speculative role" by foreign currency market aggregators.

According to the central bank's findings, foreign currency market aggregators -- systems used in forex trading to aggregate liquidity from several liquidity providers -- considerably influence the country's exchange rate.

During a press briefing at the central bank yesterday, BB Governor Ahsan H Mansur said the complete transition from the crawling peg to a free market-based exchange system is not yet possible due to the speculative role of aggregators

"If we make it fully market-based, they will take advantage of it," said the governor while speaking at the press briefing to announce the monetary policy for the second half of fiscal year (FY) 2024-25.

Mansur focused on the central bank's proactive efforts to protect the foreign exchange market from volatility by curbing the influence of these foreign currency aggregators.

On 12 January this year, the central bank implemented a reference-centric exchange rate mechanism to enhance flexibility and stability in the local foreign exchange market.

This framework is meant to facilitate the effective operation of the existing crawling peg exchange rate system while laying the groundwork for a transition to a more flexible exchange rate regime in the near future, according to the Monetary Policy Statement (MPS).

"When the overall macroeconomic environment becomes more stable and the foreign exchange reserve position improves further, BB will devise an intervention strategy, establish a sizable intervention fund and move to a market-based freely determined exchange rate system," it said.

The BB has also introduced a method for calculating the foreign exchange spot reference exchange rate.

This rate is determined as a weighted average of freely quoted exchange rates from market transactions between customers and other dealers.

According to the monetary policy, the spot reference exchange rate is a major step towards achieving a fully flexible exchange rate system.

Exchange rate management under this new system is anticipated to buoy remittance inflows and enhance foreign exchange reserves, according to the MPS.

Increasing exchange rate flexibility is crucial for enhancing resilience against external shocks, safeguarding reserve buffers and facilitating the BB's move towards a more modern and proactive monetary policy, it said.

In May 2024, the BB introduced the crawling peg exchange rate regime as an interim solution before fully transitioning to a market-determined flexible exchange rate system.

This crawling peg mechanism balances stability and flexibility within specified limits.

Prior to this change, the BB adjusted the local currency taka against the US Dollar, reflecting a considerable taka depreciation to bring it closer to market-clearing levels and in line with the underlying real effective exchange rate levels, the BB mentioned.

The central rate of the crawling peg was adjusted twice since August 2024 and the exchange rate band was widened in August 2024 to 2.5 percent.

On 31 December 2024, the central bank further advanced its efforts by allowing authorised dealers to buy and sell foreign currency at freely negotiable rates within the band, thereby enhancing exchange rate flexibility.

To support the effective functioning of the foreign exchange market, the BB has also begun publishing the foreign exchange market spot reference rate since 12 January 2025. This rate is published twice daily.

The BB also intends to develop an auction-based foreign exchange intervention strategy in preparation for the future exchange rate framework, which is an essential element in modernising monetary and exchange rate policies.

Under this, interventions will occur exclusively in the spot market through the buying or selling of US dollars.

The BB has set a maximum allowable spread of Tk 1 between the buying and selling rates for foreign currencies to ditch discriminatory currency practices and streamline operations.

Besides, advertisements must display daily exchange rates on digital screens and prominently on their websites, ensuring transparency and accessibility for customers, the BB said in the MPS.