Economy Forward

This article is to highlight the meaninglessness of the CB's last monetary policy decision (April 4, 2023) as reflected in the press statement . The statement is nothing but a bunch of words and sentences, not even understood by the writers. Policy decision To maintain policy interest rates at current levels of 15.5% and 16.5%. I predicted this outcome with possible underlying reasons in my article released in the early morning of April 4. However, contents in the press statement are highly misleading and erroneous and do not show any connection to the policy decision as highlighted below in 9 categories of contents of the policy statement. Content 1 "Having considered the recent and expected economic developments, and macroeconomic projections on domestic and global fronts, the Board viewed that the maintenance of the prevailing tight monetary policy stance is necessary to ensure that monetary conditions remain sufficiently tight to facilitate the continuation of the ongoi...

This purpose of this article is to predict that the CB will keep policy rates unchanged at current levels of 15.5% and 16.5% at today's Monetary Board meeting. What should the CB really do? In terms of the policy rates-based monetary policy model pursued solely for reducing inflation to the target of 4%-5% by contracting the economy at any cost, the CB should raise policy rates at least by another 100 bps. Key factors in this regard are as follows. Central banks in advanced market economies raised rates in the third week of March on gloomy concerns over broad-based inflationary pressures, despite accelerated path of rate hikes in 2022. Inflation in Sri Lanka also seems to be sticky around 50% despite the rapid hike of polcy rates so far by 1,100 bps so far since the begining of 2022. The decline in inflation March was only 0.30%, i.e., from 50.6% to 50.3%. For the first quarter 2023, it is marginal from 51.7% to 50.3%, despite the new CPI.  Therefore, there is no sign of being able...

  The Central Bank (CB) introduced a new monetary policy model with standard policy interest rates (SDFR and SLFR) added with restricted standing facilities (taking overnight deposits and overnight lending) (OMO) from mid January 2023. This article is to highlight outcomes of the new policy model  during the first quarter 2023  covering monetary operations and market developments through a short graphical presentation. However, an analysis of micro perspective behind such developments is not the purpose of this article. The article reveals the prevalence of monetary manipulations that could cause systemic triggers in the event the authorities delay the policy response. Monetary Operations Standing operations and liquidity level fluctuated in an unusual volatility. Money printing through the direct purchase of Treasury bills by the CB rose significantly to provide monetary liquidity to the economy through fiscal operations. Policy rates were raised by 1% to 15.5%-16.5% on ...