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Economy in a deflation trap. A rate cut of 200 bps urgent. Monetary policy non-responsive or failed?

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  Article's purpose and background The purpose of this short article is  to provide highlights on central bank (CB) monetary policy operations during 1st three quarters of 2024, raising serious concerns over deflationary economy in years ahead and monetary policy failure to maintain the domestic price stability and to recommend  an emergency rate cut of at least 200 bps and a timely injection of fresh reserves of at least Rs. 3 trillion in years ahead to promote a fair distribution of credit across priority sectors such as exports and domestic foods to recover the economy before the second round of default possible in 2028 consequential to the commencement of foreign debt service on restructured terms. However, finding the leadership with capacity and energy to understand and implement the recommendation above is extremely difficult in the present IMF economic governance system. Leading highlights are as follows. Early signs of the economy being pushed to a deflationary trap indica
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Why new govt's borrowing also is high? For debt service or high local interest rates?

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  Article's purpose and background This short article highlights how high domestic interest rates inappropriate for the economy have become the key reason for continuously high borrowing by the new government. The media is full of comments why the new government also borrows in large amounts despite its anti-borrowing stance.  Analyst's provide reasons of own fantasy. The borrowing to repay debt and interest raised by previous governments, mismanagement of debt by past governments and high exchange rates involved in repayment of foreign debt are cited as popular reasons. Although the Ministry of Finance has the full set of information, it does not provide clarifications to the public on the facts. Real reason -  high domestic interest rates I provide high domestic interest rates as the prime reason for rising indebtedness of the new government. A graphical presentation is given below based in statistics published by the Central Bank (CB). Highlights of the statistical evidence
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Debt restructuring justice. Sugar high profit to creditors justified? Re-default imminent?

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Article's background I happened to  read the attached article ( Read the Article here ) titled " Bondholders could make $14bn from emerging market restructurings, says Debt Justice " published in the UK Financial Times, yesterday, based on research findings by Debt Justice, a UK debt campaigner. These findings are made on expected risks and returns of foreign bond restructuring of several countries including Sri Lanka mediated by the IMF under its bailout programmes. Therefore, the purpose of this article is to share the highlights of the research, mainly on undue restructuring profit to bondholders, as published in the Financial Times as this research provides a good eye-opener to assess the benefits of the ongoing debt restructuring methodology to the country . However, no attempt is made to comment on Sri Lankan debt restructuring progress or profit/loss as relevant official agreements or facts approved by the Parliament are not yet available. Highlights of the article
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Public debt again to be a monetary policy instrument. Fiscal autonomy lost? How ethical is it?

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  Article's background The purpose of this article is to reveal a questionable provision of the brand new Public Debt Management Act certified on 18th June, 2024, i.e., section 14 that provides for public debt to serve as a monetary policy instrument for the autonomous Central Bank (CB). This is a strange provision in view of the brand new Central Bank of Sri Lanka Act certified on 14th September, 2023, which gave the full autonomy (operational and financial) to the CB. The autonomy is such that the CB is prohibited from even lending to the government directly or indirectly or to bailout (lender of last resort) banks in liquidity crises. Section 14 The section 14 is reproduced below. Highlights of the section 14 Government debt securities to be issued at the request of the CB to support the monetary policy objectives in terms of the CB Act. Proceeds of such securities to be deposited in a segregated account at the CB. The cost to be fully reimbursed by the CB. Outstanding amount to
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Central bank monetary system failed: Diagnosis and prescription. Treatment is urgent and difficult.

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  Article's background  The purpose of this article is is to reveal how the failure of the monetary concept that has been pursued for the past 73 years has caused the bankruptcy of Sri Lankan economy in 2022. Economic or business bankruptcy is essentially a monetary phenomenon. The background of this view is as follows. Central banks world-wide rest on the concept of old quantity theory to carry out their money printing operations despite the long rhetoric of underlying stories. This theory simply predicts that if the growth of money supply or stock runs faster than the growth of output (or real GDP), the economy will confront an inflation equal to the difference between money supply growth and output growth. For example, if money supply grows annually by 15% while output grows by 7%, inflation will be 8%. This is the famous monetary belief that inflation is always a result of too much quantity of money chasing after too little quantity of goods. This states that inflation is alway
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