ECONOMYNEXT – Sri Lanka’s monetary policy should be conducted by the Central Bank so government needs are accommodated, Finance Minister Ravi Karunanayake said.
"Monetary policy should be conducted (by the Central Bank) so government requirements are fulfilled as an independent institution," Finance Minister Ravi Karunanayake said. (Monetary policy thiyenna – moolya prathipatthi katayuthu karanne – anduwe awashyatha itu karanna puluwan vidiyata swadeener ayathanayak washayen)
The government was carrying forward a development programme as required by the president and prime minister, he said.
Karunanayake said fiscal policy was getting better and state tax revenues were going up.
An independent central bank that acts to keep inflation down brings economic stability and lays a steady foundation for long-term growth.
A central bank – especially one that is loosely pegged – that keeps interest rates down by printing money will generate currency depreciation and push up inflation.
A steadily falling currency will also make workers poor and drive them to the Middle East, seeking jobs with better real wages.
The Bretton Woods system collapsed and the world suffered a so-called oil shock in the early 1970s after President Richard Nixon put pressure on then Federal Reserve Chairman Arthur Burns to keep rates down (Inside the Nixon Administration: The Secret Diary of Arthur Burns) in the midst of the Vietnam War to get short-term growth.
Sri Lanka’s economy runs into frequent balance of payments crises because the central Bank tries to keep rates down when the budget deficit or domestic credit goes up.
In 2015, Sri Lanka ran into a balance of payments crisis largely by accommodating a deficit, and in 2011/2012, borrowings by state energy enterprises were accommodated.
Sri Lanka’s current Central Bank Governor Indrajit Coomaraswamy is considered to be an independent economist with a high level of integrity who is rebuilding public trust in the institution.
He has also acted to stop fraud in bond auctions and alleged dumping of pumped up bonds in the Employment Provident fund over the last two years.
There have been growing calls to back Coomarswamy’s efforts to make the Central Bank more independent.
The Central Bank became highly politicised over the course of the last regime and was involved in a series of controversies.
Minister Karunanayake said there were no answers to questions on Greek bonds and private placement of bonds.
Minister Karunanayake said he had closed circuit video footage to back a statement made in parliament that Central Bank officials had given out a large volume of money on January 07, 2015, shortly before the elections.
It will be released at a correct time, the Finance Minister said.
He alleged that some ‘henchmen’ of the previous Central Bank Governor were distorting issues and that will also be revealed.
The opposition was now raising a cry about Hambantota to hide such matters, he said.
The current Central Bank Governor Indrajit Coomaraswamy was reported to have said about the economy being in hospital and not the intensive care unit.
He said the economy was in the ICU during the last administration and soon it will in the outpatient’s department. (Colombo/Jan106/2017)