Sri Lanka sees build up of bipartisan support for inflation targeting

Jan 26, 2008 (LBO) — A senior opposition lawmaker in Sri Lanka has expressed support for inflation targeting, in a build up of bipartisan backing for legal changes needed to take the country towards low inflation. . “If you print money inflation is going to go up,” parliamentarian Kabir Hashim, an economic policy heavyweight in the main opposition United National Party (UNP), said.

“I think it is essential that inflation targeting is introduced.”

Effective Policy

Inflation targeting is a process where a central bank is mandated by parliament to keep inflation at a low level, usually around two to three percent a year.

To conduct effective monetary policy the central bank has to be made completely independent from government control and given a single objective of price stability or the issue of a paper currency that preserves its value.

In 2006 Sri Lanka’s inflation hit 19.6 percent according to the most widely watched Colombo Consumer Price Index and it declined to 16.4 percent in 2007.

Most of the inflation was created in the second and third quarters of the year as the Central Bank paused its tight monetary policy to accommodate fiscal needs.

“If you analyze this pro