Causes of Indian Rupee Depreciation and its Impact of Bangladesh Economy

The intention of this paper is to examine the impact of Indian Rupee depreciation on Bangladesh Economy. The empirical results obtained from OLS for the sample period from 2007:10 to 2013:10 show that Bangladesh’s export to India is sensitive to India’s Rupee depreciation. It is elastic implying that a 1% increase in India’s Rupee will cause Bangladesh’s export to India to decline by 2.7 percent. The relative output and the relative price variables are also very sensitive to Indian Rupee depreciation. Bangladesh import from India is insensitive to India and Bangladesh relative exchange rate changes. It is insensitive implying that 1% increase in India’s Rupee will not cause any changes in Bangladesh’s imports from India. However, Bangladesh’s imports are very sensitive to the relative price level changes as evident from the estimated equation. The empirical results obtained from OLS show that Bangladesh consumer price index is insensitive to relative exchange rate changes though appearwith the expected positive sign. However, India’s consumer price index is highly signifi cant with the expected positive sign implying that a 1% increase in the India’s price will cause Bangladesh price level to increase by 0.76 percent.