Ultimate Aim

May 5, 2007 (LBO) – An amendment effected to the Monetary Law Act in 2002 requires the Central Bank of Sri Lanka to pursue ˜economic and price stability’ as one of the two core objectives of the Bank. The writer is the Deputy Governor of the Central Bank of Sri Lanka

This is somewhat a departure from the central banks in the rest of the world which have been mandated to attain only ˜price stability’. Hence, it may be puzzling to many whether the Central Bank of Sri Lanka has been given an additional objective to attain.

It is, therefore, timely to identify the precise meaning of this phrase ˜economic and price stability’ in the context of a central bank.

The amendment to the Monetary Law came as a part of the modernization program which the Bank commenced in 2000. One of the essential ingredients of that program was to update the Monetary Law to be on par with the emerging global best practices.

Conflicting Objectives

Up to that time, the Central Bank had been entrusted with a multitude of objectives: attaining price stability, participating in economic development, preserving the external value of Rupee, protecting banks from collapse and maintaini