Sri Lanka central bank warns of more shocks, urges policy stability

Aug 09, 2010 (LBO) – Sri Lankan Central Bank governor Nivard Cabraal warned possible economic shocks in future could take different forms and urged policymakers to stick to their policies despite pressure for change in the short term. Policy makers have to learn to balance different competing interests when administering the policies needed to restore economies back to health, he said. The central bank came under pressure to reverse its policy when it raised interest rates but stuck to it in the belief it would work in the anticipated time frame, he told a training programme for central bankers in Colombo.

The training programme on macroeconomic and monetary policy management for regional central bankers was organised by the South East Asian Central Banks Research and Training Centre.

“There’s no one correct method of dealing with the issues we have seen,” Cabraal said.

“Those who thought so have been mistaken and found to own dismay sometimes things do not work out the way they originally thought it would.”

Cabraal said that sometimes policy interventions by central banks to restore economies back to health could have side effects that are interpreted differently by those outside the bank who then demand change.