Sri Lanka central bank responds to IMF letter

May 05, 2008 (LBO) – Sri Lanka’s central bank, which earlier protested an International Monetary Fund study on external impacts on inflation, has welcomed comments by a top IMF official based on results which were further disaggregated. Sri Lanka has been buffeted by chronic high inflation and balance of payments crises since a central bank was created in 1950 allowing large fiscal deficits to be monetarily accommodated.

The central bank itself has said it wants to move into an inflation targeting framework, while economists and financial sector professionals have also intensified calls for inflation targeting or a move back to a currency board.

Despite US money printing Hong Kong which runs a currency board has had lower inflation than either China or Sri Lanka.

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Readers who are interested in gaining insights into how inflation targeting central banks counter ‘shocks’ as well as core inflation may download this speech by the governor of the Bank of England. “The CBSL is thankful to the IMF for issuing an explanation in this regard as it would provide a more clear interpretation of the results of the