Economy Forward

  Article's purpose and background The purpose of this article is to  compare Sri Lankan monetary policy model with the Fed's monetary policy model in the current context and raise fundamental concerns over Sri Lankan policy model why it fails to support the recovery of the economy. The Fed's rate cut of total of 75 bps so far to 4.50%-4.75% with 25 bps today and a jumbo cut of 50 bps in September confirms the global rate cutting cycle ( see the policy statement hare ) .  The Bank of England (BOE) (now at 4.75%) and Swedish central bank (now at 2.75%) also added another 25 bps today to their cutting cycles. European Central Bank (ECB) has delivered a 110 bps cut since June (now at 3.65%). All confirms a soft landing in respective economies, i.e., bringing inflation back to 2% target without any adverse impact on growth and unemployment (see two charts below). On the sidelines of the IMF-World Bank meetings last week, Sri Lankan central bank Governor stated to the internatio

  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

  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