July 3, 2006 (LBO) – Sri Lanka’s newly appointed central bank governor says he will promote the independence of the institution, which has come under fire from independent economists in recent years for submitting to fiscal dominance and pushing up inflation. But some previous governors who held shares in financial institutions have sold out after taking up the post. “The Central Bank of Sri Lanka is an institution which operates with some independence,” Governor Cabraal said, addressing bank employees and invited guests on Monday.
“I know that we can protect this independence and go forward. Independence is not fighting with other people. Independence is to persuade others to our view point. If we know that we are correct we can put forward our argument and get together with them and go forward,” he said in Sinhalese.
Though the central bank is charged with maintaining economic and price stability, it is sometimes forced by fiscal dominance of monetary policy to print large quantities of money which push up inflation and cause balance of payments difficulties.
After its latest bout money printing, consumer inflation in Colombo which was around 6.4 in March rocketed to 17.7 percent in June.
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