Economy Forward

The objective of this short article is to express a firm opinion that the CBSL has no option but to raise its policy rates further at the next policy meetings to suit the US Fed’s interest rate policy in view of the Fed’s policy decision and communication announced yesterday. The reason is because the CBSL also follows principles of the Fed’s monetary policy model and language for Sri Lankan economy. However, the author's view on the monetary policy model that should be adopted in terms of the Monetary Law Act to rescue the economy and general public from the present economic crisis that has been caused by the present monetary policy model is completely different as already has been highlighted in several articles released in this blog. The Fed’s Policy Direction As mostly predicted by market participants, the Fed yesterday raised its policy interest rates target corridor by another 75 bps to 3.75%-4.00% level although the US inflation peaked in July at 8.53%. The Fed’s key mon...

In the last few months, central banks around the world have been giving varying forecasts on when present inflationary pressures would be peaking. Such forecasts are simply statistical exercises without any precision and credibility. The Governor of the Central Bank of Sri Lanka (CBSL) also has been citing various peaks of inflation since August while the President also mentioned at a recent conference that the Central Bank had informed him of peaking inflation in October. The interest in checking the inflation peak is due to the notion that inflation behaves in bubbles, i.e., rising, peaking and falling, during a period of time. Therefore, the trace of the inflation peak is considered as a good piece of news to central banks and political leaders because they can please the public with the rhetoric of falling inflation in the period ahead. However, whether the public believes them is a different matter as the public can feel the effects of inflation in real time living although the ...

The objective of this article is to highlight the pathetic condition of the survey and research skill at the present Central Bank of Sri Lanka (CBSL) based on publication of financial literacy survey 2021 released on 25th October  (https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/financial_literacy_servey_sri_lanka_2021_e.pdf) The CBSL possess huge institutional memory and skills in the conduct of island wide household surveys and release of publications immensely useful for the policymakers, researchers and the general public. The series of Consumer Finances Surveys since 1953 has been the landmark source of data in assessing the socio-economic progress of the post-independent Sri Lanka. The Statistics Department in the CBSL has emerged to carry out a specialized function of surveys and compilation of socio-economic statistics within the CBSL whereas the Economic Research Department has been focusing on policy-focused research. Having been engaged in several surve...

Everybody knows that Sri Lankan Central Bank (CBSL) is non-active in its almost all national economic policy powers authorized in the Monetary Law Act (MLA) except money printing. Therefore, it is reasonable to state that the CBSL is an operationally bankrupt central bank in the world. One leading economist connected to the CBSL commented in 2015 that the CBSL was a bankrupt institution similar to Sri Lankan Airline due to the erosion or negative capital position. However, this kind of capital-based description of bankruptcy as in the case of commercial businesses does not apply to central banks as they can print money and make profit. Therefore, the purpose of this article is to shed some light on how the operationally bankrupt CBSL’s money printing policy is gradually murdering the Sri Lankan economy and its people who have been in the economic ICU from the middle of 2021.  The article primarily highlights systemic risks of the economy arising from the present monetary poli...

These days, interest rates are rising globally at a faster phase. The main reasons are inflation expectations connected with rising inflation, interest rate hikes by central banks and rising risks of economic and business activities. The fine example is the present market turmoil in the UK from September 26 immediately after announcing the Govt. mini budget  on September 23  with a historic tax cut of £45 bn and a cap on annual household energy bill at £2,500 reduced from  £6,500 for  the aim of promoting growth and controlling inflation. As immediate financial market response, the currency tumbled to historic low and govt. bond yields shot up in speculation of rising debt to finance the mini budget deficit and resulting inflation. Meanwhile, the pension fund industry being a major investor in bonds started confronting a bankruptcy-threatened liquidity risk due to plummeted bond prices.  As a result, the Bank of England (BoE) had to announce £65 bn worth bond ...