Sri Lanka to use monetary policy tool mix to target inflation: CB official

Standing left to right – Mr. Dinesh Jebamani (Chief Manager Liability Product Management and New Age Media – Seylan Bank), Mr.Sudesh Peiris (Senior Manager – Digital Banking Channels – Seylan Bank), Ms. S.Senevirathne (Representative of the Revenue Department – Western Province), Mr. Tilan Wijeyesekera (Deputy General Manager – Retail Banking – Seylan Bank) and Mr. Malik Wickremanayaka (Deputy General Manager – Operations – Seylan Bank)

Sept 19, 2009 (LBO) – Sri Lanka was ready to change intermediate targets or vary its policy tools dynamically to keep inflation low, a senior central banker said, though the final inflation target is as yet somewhat loosely defined. Sri Lanka’s central bank has a loosely defined inflation target of “single digit”. In 2007 and 2008 Sri Lanka had 20 percent plus inflation when other dollar pegged countries managed with inflation around or just higher than reported US inflation figures.

Monetary Inflation

When Sri Lanka’s inflation rose steeply, the Central Bank had moved to a strict money supply targeting framework.

“Because we saw our experience – looked back and saw what was the source of the high inflation,” assistant Central Bank governor P N Weerasinghe told the annual sessions of the Sri Lanka Economists Association.

“And one of the reasons was that we had in some years a relatively higher monetary expansion than we wanted.”

The Central Bank then started to target reserve money aggressively instead of rates. Rates were allowed to move up to high levels.

Sri Lanka’s central bank has a poor record of controlling inflation and maintaining its peg with the US dollar.

Critics attribute t