CB hopeful of inflation targeting by first quarter, next year

31 August 2018 12:10 am - 0     - {{hitsCtrl.values.hits}}

A A A

  • Under flexible inflation targeting, Monetary Board will execute more proactive and forward looking monetary policy
  • But success of inflation targeting largely depends on fiscal discipline and sticking to a budget consolidation path 
  • However, critics say Central Bank is on a suicidal mission as under inflation targeting, it becomes a victim of govt. financial profligacy 

 

The Central Bank remains hopeful that it can migrate to flexible inflation targeting in the first quarter of next year— one year before it was originally planned. 


Flexible inflation targeting is where the interest rates are determined aiming a set inflation target instead of targeting reserve money or broad money in the economy. 


For instance, the United States Federal Reserve has set its consumer price inflation target at 2.0 percent for at least for five years before it raised its interest rates. 


Under inflation targeting, a Central Bank walks on a tight rope where it should set its key policy rates to a level, which will neither overheat the economy nor undermine its growth. 


“We feel that we are on track to have a fully-fledged flexible inflation targeting regime by the end of the first quarter of next year,” said Governor Dr. Indrajit Coomaraswamy. 


Under flexible inflation targeting, the Monetary Board is able to execute a more proactive and forward looking monetary policy, Dr. Coomaraswamy said. 


However, the critics of the new system said the Central Bank is on a suicidal mission by adopting inflation targeting as it becomes an easy scapegoat for the financial profligacy of the government. 


The success of inflation targeting largely depends on fiscal discipline and sticking to a budget consolidation path without any deviation. 


In an earlier occasion the Central Bank said that they would migrate to flexible inflation targeting only if the government succeeded in containing the budget deficit to 3.5 percent of GDP by 2020 and maintained it below that level thereafter. 


Sri Lanka’s budget deficit has overshot its target for decades and it was 5.5 percent of GDP in 2017 while the headline national inflation in July reached 3.4 percent on a year-on-year basis. 


In order to achieve the intended objectives of the flexible inflation targeting, the Monetary Law Act is being amended to help the Central Bank to anchor inflation expectations and present fiscal dominance over the monetary policy.  

 

Further, the Central Bank is also trying to amend the Fiscal Management (Responsibility) Act 2003 to cease deficit financing by the Central Bank as it has been the habit for decades. 


“We will be putting in place a legal framework to not possible to have fiscal forbearance,” Dr. Coomaraswamy added. 


At a time when the country is exposed to international capital markets, Dr. Coomaraswamy said that this type of legal framework is necessary to showcase the country has stability and macroeconomic fundamentals in place. 


However, he noted that much of the success would depend on the political will. “Of course all these things need political blessings,” he said.  

 

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.

 

  Comments - 0

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.

 

 

Add comment

Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Reply To:

Name - Reply Comment




What happened at Mahara: Conspiracy OR sudden unrest ?

A violent protest erupted in one of the country’s largest high security pri

No money, paddy or rice

As President Gotabaya Rajapaksa completes his first year in office, the Consu

COVID-19: We can’t prevent new outbreaks

Once again, emphatic declarations are being made that there are zero risks of

Gotabaya Govt’s pre-emptive strike against LTTE Maaveerar Naal

November 27th 1989 was the day on which the Liberation Tigers of Tamil Eelam

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.