ECONOMYNEXT – Sri Lanka’s new administration will have to decide whether to pass the new central bank law that has been drawn up, but the agency would be able to run a ‘flexible’ inflation targeting regime, a top official said.
“The new government will have to look in to the proposed act and decide whether it needs amendments or they will go ahead with the same thing,” Deputy Governor Nandalal Weerasinghe said.
Weerasinghe said the process of passing a bill for a new Monetary Law Act, drawn up by the central bank and which was introduced to parliament ended when the assembly was prorogued.
The process will have to re-start from cabinet approval, Weerasinghe said.
Senior Economic Advisor to the Finance Minister Nivard Cabraal who was also an ex-Central Bank Governor has said that the new administration may decide not to pass the law.
Analysts who closely track the central bank has said that the new law does not address the principle source of monetary stability in the country, in the form of dual anchor conflicts that lead to frequent balance of payment crises and output shocks.
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The law also institutionalized the dual anchor conflicts contained in an unstable soft-peg defined a ‘flexible exchange rate’
Economists and analysts have called for either genuine inflation target with a floating exchange rate or a East Asia hard peg or Dubia style stable peg with floating overnight rates to end monetary instability. (Colombo/Dec29/2019)