Sri Lanka should overhaul monetary policy: economist

Feb 26, 2008 (LBO) — Sri Lanka should overhaul its monetary framework in the light of 20 percent plus inflation as such high levels could only be generated domestically by a central bank, a top Sri Lankan born economist has said. “There is no huge mystery to inflation, and I have run into people here who say they are trying to understand the machine that is creating inflation,” Sarath Rajapathirana, a former central banker who worked at the World Bank told MTV’s Bizfirst show.

“And I have told an old colleague of mine, ‘I know what that machine is. I used to work there’,” he quipped, laughing.

In January 2008, the 12-month consumer prices in Colombo measured by a controversial new index from which an entire sub-group of expenditure had been dropped, was 20.8 percent.

Sri Lanka said it would not release a country-wide inflation index after it showed 26.2 percent in inflation in November 2007.

Supply Shocks

Rajapathirana, who is a visiting fellow of the American Enterprise Institute, said rising commodity prices explained a part of the inflation, but not why it was so much higher than neighboring South Asian countries, which had rates ranging from 5 to 11 percent.

“It is true that prices go u