Sri Lanka could stabilize economy with inflation targeting: IMF director

Dec 10, 2007 (LBO) – Sri Lanka could stabilize its economy and rein in galloping prices by moving to an inflation targeting framework and a flexible exchange rate, a top International Monetary Fund official said. Unlike East Asia and some Latin American countries, critics say five decades after creating a central bank with money printing powers which led to a progressive closure of the economy and three decades after re-opening the economy, Sri Lanka seems to have learned little. “Countries that adopted inflation targeting have been able to reduce level of inflation and they have been able to reduce the variability of inflation,” Anoop Singh, the head of IMF’s western hemisphere department, said in Colombo.

“And the research that has taken place shows that inflation targeting has worked rather well.”

In Sri Lanka there have been growing calls to adopt legislated inflation targeting, where the parliament through a special law a gives a low inflation target of less than five percent a year for the Central Bank to achieve.

High Inflation

Sri Lanka has had high inflation and economic instability ever since the creation of a central banking regime in 1951 as the government mis-used the mone