Sri Lanka lifts price controls on bank deposits

ECONOMYNEXT – Sri Lanka has lifted price controls on depositors to expropriate small depositors, in the wake of a currency collapse in 2018, triggered by dual anchor conflicts, implying that there was a ‘market failure’.

The deposit price controls were slapped linked to as formula based on Treasuries rates.

However in the wake of monetary instability after July, gilt rates have spiked.

The central bank however has slapped price controls on lending.

It said the deposit controls were being withdrawn in after the “to the issuance of the Directions to the licensed banks by the Central Bank of Sri Lanka.”

However critics have pointed out that there is state failure in dual anchor conflicts in Sri Lanka’s monetary regime, which generated instability, currency crisis and structurally high interest rates.

Analysts have called for reform of the central bank’s dual anchor conflicts and move to a inflation targeting framework with a genuine floating rate or following monetary policies consistent with a pegged exchange rate which is required to maintain a foreign reserve ‘buffer’. (Colombo/Sept26/2019)

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