Sri Lanka’s central bank says ‘bad money’ is under control

April 03, 2007 (LBO) – Sri Lanka central bank says it had met the 17.2 percent money growth number it had set for itself for March, with actual money supply undershooting the target as it attempted to put the lid on runaway inflation in the country. “The actual reserve money as at the end of March 2007 was 252.9 billion,” the Central Bank said Monday.

“Accordingly, the target set for the first quarter 2007 was achieved with a comfortable margin. The average reserve money for the first quarter 2007 was even below at 245 billion rupees.”

The bank had a reserve money target of 254 billion for March.

Nasty Reserves

Reserve money, also known as ‘high powered money’, is created either by the purchase of securities or foreign exchange by the Central Bank.

In the past Sri Lanka’s central bank had been forced to purchase large volumes of government treasury bills to finance mainly subsidies, causing sudden increases in reserve money and later translated into inflation and balance of payments troubles.

The central bank admitted Friday in its annual report that it had printed at least 38.5 billion rupees to finance the budget deficit in the calendar year 2006.

Central Bank said its discount rate has been raised and