Economy Forward

This article is a short presentation of the failed monetary front of the economy in 2022 and expectations in 2023 and beyond.  This article is supported by the daily monetary statistics available in the Central Bank website.  The economic crisis and bankruptcy being confronted by the government, business sector and households since the end of 2021 consequent to the mismanaged and collapsed monetary front require no analysis. As the economy is the sum of real sector and monetary sector inter-dependent, the mismanaged monetary sector invariably causes crises and bankruptcies. Selected Monetary Highlights in 2022 The increase in the policy interest rates from 5%-6% to 14.5%-15.5% without any macroeconomic rationale is the key root of the monetary mismanagement (see C1). This has tightened monetary conditions unreasonably across all sectors of the economy. The daily volume of overnight standing deposit and standing lending operations has risen to significant levels to maintain the...

  It was reported that, on the first working day of the new year 2023, the Central Bank of Sri Lanka (CB) issued a new rule on open market operations (OMO) for licensed commercial banks to be effective from 16 January 2023, as follows. Limiting the Standing Deposit Facility (SDF) to any bank to a maximum of five times/days for each month. Limiting the Standing Lending Facility (SLF) to any bank to a maximum of 90% of the Statutory Reserve Requirement of each bank on any given day. Therefore, this short article is to highlight that, with this new monetary policy rule, the CB loses not only its key monetary policy instrument but also monetary policy as a whole. This raises serious concerns over the fitness and propriety of those in the CB who make public policy decisions and implement them. Policy Interest Rates The key monetary policy instrument used by all central banks in present monetary policy models is the interest rate announced by them for their overnight lending op...

When economies confront problems such as inflation, deflation, unemployment and recession, mainstream economists and policymakers refer to the situation as macroeconomic imbalance. They also provide reasons for the imbalance and propose various policy actions to stabilize the economy back to the balance. In this analysis, macroeconomic imbalance is referred to the situation that the total supply of goods and services of the economy is not equal to its total demand. For example, central banks around the world state that present inflationary pressures are due to the demand in excess of the supply consequent to the stock of money expanded and supply bottlenecks during the pandemic time 2020-21. The reasons they mostly cite for the expanded money stock are the money printing and bank credit created to fund the government budgets/spending on fiscal stimulus to fight the pandemic. Therefore, almost all central banks have started raising interest rates to reduce the monetary/credit growth...