Apr 13, 2011 (LBO) – Sri Lanka’s central bank had independence in 2010 and the country moved forward with more prudent fiscal and monetary policies, Treasury Secretary P B Jayasundera said. Central Banks were originally created by kings to print money and fight wars creating inflation and balance of payments troubles in the process.
Sri Lanka’s Treasury had earlier come under fire in earlier for running excessive deficits and generating inflation and currency depreciation through fiscal dominance of monetary policy.
Last year the deficit was brought down to 7.9 percent of gross domestic product, which is lower than the 9.9 percent deficit recorded in 2009. For 2011 an even lower deficit of 6.8 percent is planned.
But inflation is now racing ahead, partly due to money printing by the US Federal Reserve which is pushing up commodity prices including oil. Sri Lanka’s rupee is pegged to the US dollar. As a result it serves as a de facto external anchor for domestic inflation.
Sri Lanka ended 2010 with the central bank generating 6.9 percent inflation slightly higher than the 4.8 in 2009, though still low by its earlier records.
In March inflation rose 8.6 percent from