The paper adopts a single equation approach to examine the real exchange rate behaviour and exchange rate misalignment in Bangladesh. The paper finds that real exchange rate and the macroeconomic fundamentals affecting real exchange rate form a cointegrating vector. It observes that trade liberalization and increase in debt service burden result in a real depreciation of currency, while increase in capital inflow, improvement in terms of trade, and increase in government consumption of of non-tradable result in a real appreciation of currency. Nominal devaluation has been able to partly retain its effect to have a real devaluation in the short run. Estimation of long run equilibrium real exchange rate reveals that our currency was considerably overvalued until late 1980s. However, real exchange rate broadly was in equilibrium during the 1990s.