Colombo (LNW): The Sri Lankan Rupee happens to have appreciated against the US Dollar today (31) in comparison to Tuesday, as revealed by leading commercial banks in Sri Lanka.
Accordingly, Peoples Bank reveals that the buying price of the US Dollar has dropped to Rs. 312.88 from Rs. 315.56, and the selling price to Rs. 327.58 from Rs. 330.38.
At Commercial Bank, the buying price of the US Dollar has dropped to Rs. 313.72 from Rs. 315.70, and the selling price to Rs. 326 from Rs. 328.
At Sampath Bank, the buying price of the US Dollar has dropped to Rs. 314 from Rs. 317, and the selling price to Rs. 325 from Rs. 328.
PMD: President Ranil Wickremesinghe, addressing the Forum on Sri Lanka Sustainable Development Trajectories & Pathways, expressed unwavering confidence in Sri Lanka’s potential to develop independently and alleviate the burden on external assistance.
“I think we in Sri Lanka should no longer think of asking others for help. But let’s make it on our own as many countries have done,” President Wickremesinghe asserted, underlining the nation’s determination to forge its path.
The President underscored the importance of diversifying financial resources beyond traditional channels. President Wickremesinghe emphasized that Sri Lanka’s reliance extends beyond financing solely from multilateral development banks. The engagement of the private sector, along with encouraging investments, has been identified as a crucial factor in generating the necessary funds to drive the country’s sustainable development initiatives.
In a bid to foster competitiveness and navigate economic challenges, President Wickremesinghe highlighted Sri Lanka’s proactive efforts to overhaul its economy. Drawing inspiration from successful models such as Thailand, Indonesia, and Vietnam, the nation seeks to attract foreign investments and capitalize on emerging markets.
President Wickremesinghe’s address at the Sustainable Development Forum conveyed an unwavering commitment to self-reliance, economic transformation, and sustainable growth, positioning Sri Lanka on a trajectory of progress and resilience.
Following is the full speech delivered by President Ranil Wickremesinghe;
“When the speakers before me were explaining the Sustainable Development Goals and what we have achieved so far, the question that arose in my mind was: what is the future?
I will be one of those participating in the discussions at the United Nations, which have been called for by the Secretary General. While discussing these issues with some of them and with some of my officials here, I had to raise a few questions that I thought I would also place before you. Where do we go from here? We have the Sustainable Development Goals that you all accepted, and now we are evaluating the results halfway through. But the world has changed a lot since then. In addition to the Sustainable Development Goals, we had the Paris Climate Summit and the Glasgow Summit, and thus the whole issue of climate change.
Furthermore, we are also meeting in the aftermath of the adverse impact of COVID-19 worldwide. Sri Lanka is one of the worst-affected because COVID itself resulted in Sri Lanka becoming bankrupt. However, every country has suffered. There has been a significant setback to the global economy. Even if we look at the situation today, what progress do we see? In Europe, it is still stagnant. The US has been luckier with growth taking place and the on-and-off rise and fall of economic performance. China is still in the process of recovery. So the engines of world growth have come to a halt.
So, what is the cost of all this for us? How do we find the financial resources for the Sustainable Development Goals? How do we find the financial resources for climate change mitigation? How do we find the financial resources for the global debt financing crisis? The engine itself, the engine of growth, has still not reached its fullest potential. It is in crisis. And with this engine of growth in crisis, we have also got to find the resources both for the Sustainable Development Goals and for climate change.
I am not speaking against these goals; these are goals that we have to fulfil. We have our commitment from the SDGs of 2030 to the climate change goals of 2050. Recently, the Secretary General called for an accelerated agenda. But all this requires the ability to find the resources.
Some thought that the developer would be good enough to fund it. However, they are not. They certainly haven’t come up with the resources. And at the moment, I don’t think they have the resources, given the problems they are facing. So where do we find it? Is the world still ready for a period of fast growth? No. So we are in the middle of another crisis. So, first, we have to look at how to find the resources, what resources are available. We rely not only on financing from the multilateral development banks, but also from the private sector. The private sector needs to invest, and the private sector needs to issue bonds. Will that succeed in the case of many countries? Some may not be prepared to accept it, and the private sector may find that other countries are not suitable for investment. So, we are leaving about one third to 40% out of that.
Then how does the rest grow? This is an issue we have to address. Where do we find the funding? Look at Sri Lanka. In 2019, we required an annual investment of 9% of GDP just to achieve the SDGs. In addition to this, we now have the climate change goals, and we are a country that’s bankrupt. So, where do we find the resources? This is a question that all of us have. As far as Sri Lanka is concerned, we will make the best effort. As a result of the debt crisis we’ve had, we are now taking measures to completely restructure the economy. We are following the path that Thailand, Indonesia, and Vietnam have taken, so that we become a highly competitive economy and learn to find our markets. We can no longer be the sheltered small economy that we were earlier. I hope that we will succeed, but it means reworking, starting from the beginning. We have to invest in new technologies and bring in foreign investment and capital. This is what we want to do because if we can develop on our own, then fewer resources will be needed for Sri Lanka, and more resources will be available elsewhere.
So let’s not be a burden. I think we in Sri Lanka should no longer think of asking others for help, but let’s make it on our own, just like many other countries have done. Take Vietnam, a country completely destroyed by war, which was still able to become a world power. There are many growing economies like Vietnam. There are numerous instances, and we are situated in the area of the Indian Ocean and the Pacific Ocean. We are in East Asia, Southeast Asia.
We are observing growth taking place. India holds potential for growth, and the Indian Ocean region is anticipated to be the next area of growth. So, we will strive to succeed on our own. However, can the whole world be supportive? They are after you. While Sri Lanka has its share of the Sri Lankan coast, it doesn’t necessarily mean that there will be ample resources available for others. With three distinct programs needing attention, it is prudent for us to consider an integrated approach to resolving this. We need to determine the areas that deserve immediate emphasis and those that can be addressed later.
I believe it’s time for all of us to review this situation. We should review the SDGs, assess climate change mitigation efforts, and examine the global debt crisis. The objective is not to abandon any of these but to bring them together and then find a way to regroup for the next phase. I intentionally use the term “regroup” because, in battle, after some time when your forces are scattered, you gather them all and regroup for the next assault. Similarly, we need to regroup, strategize, and move ahead. This is what I believe. This is what we have been contemplating, and I think it’s a serious option for us to consider.”
Meanwhile, addressing the forum, Treasury Secretary & Sustainable Development Council Chairman Mr. Mahinda Siriwardane said,
The midpoint of Sri Lanka’s pursuit of the 2030 Sustainable Development Goals (SDGs) prompts contemplation on progress, challenges, and commitments.
He said the forum’s significance lies in its potential to address fiscal constraints and debt issues that impede development aspirations. Globally, an extra $500 billion annually is essential for sustainable development. Sri Lanka, too, requires substantial resources for recovery and long-term progress, he added.
Mr. Siriwardane noted that fiscal stability and resilience are pivotal, accompanied by reshaping financial structures to bolster SDGs. Revenue-based fiscal consolidation efforts aim to restore fiscal and debt sustainability. Critical to this are fiscal institutions, institutional reforms in tax administration, expenditure management, and energy pricing.
“Environmental and social goals are aligned with government policies. Poverty reduction to 8% and unemployment to 5% by 2030 is targeted. The nation’s commitment to renewable energy is evident, aiming for 70% and 100% electricity from renewable sources by 2030 and 2050, respectively.”
He focussed on inclusive and equitable development, with the aim of leaving no one behind, adding that social safety nets, including the Welfare Benefits Program, support the vulnerable. Initiatives like the Roadmap for Sustainable Finance, Green Finance Taxonomy, SDG Investor Map and Green Bond Framework enhance SDG integration into the financial system.
Governance reforms and public financial management will continue, he said, adding that the new Public Financial Management Act with binding fiscal rules is being drafted. Enhanced powers and resources to investigate bribery and corruption have been enacted and a new Central Bank Act supports independent inflation targeting.
He also noted that efforts to align SDGs with the national budget process aim for targeted resource allocation. Reforms for economic stabilization and sustainable growth are pursued, alongside digitalization of public services and climate resilience investments.
Siriwardane appreciated collaboration and anticipates fruitful deliberations fostering partnerships and insights towards a sustainable Sri Lanka by 2030.
Ms. Chamindry Saparamadu, Director-General of the Sustainable Development Council, Mr. Arman Bidarbakht Nia, Head of the Statistical Data Management Unit of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), Ms. Azusa Kubota, Resident Representative of the United Nations Development Programme (UNDP), Mr. Marc-André Franche, Resident Coordinator of the United Nations (UN) in Sri Lanka, also spoke at this occasion. H.E Armida Salsiah Alisjahbana, Under-Secretary-General of the UN and Executive Secretary of UNESCAP, and Kanni Wignaraja, UN Assistant Secretary-General and UNDP Regional Bureau for Asia and the Pacific, also joined and delivered their messages via Zoom technology.
Prime Minister Dinesh Gunawardena, along with Ministers Ali Sabry, Pavithra Vanniarachchi, Mahinda Amaraweera, Keheliya Rambukwella, and State Ministers Shehan Semasinghe, Geetha Kumarasinghe, as well as President’s Senior Advisor on Climate Change Mr. Ruwan Wijewardena, Central Bank Governor Dr. Nandalal Weerasinghe, Secretary to the Ministry of Environment Dr. Anil Jasinghe, and Secretary to the Ministry of Energy U. K. Mapa Pathirana, along with Country Director of the Sri Lanka Resident Mission of the Asian Development Bank (ADB) Mr. Takafumi Kadono, and Chief Representative of the Japan International Cooperation Agency (JICA) Sri Lanka, University Vice Chancellors, Heads of Private and Public sectors, and officials of the National Council of Sustainable Development were present at this occasion.
Colombo (LNW): The New Zealand (NZ) government has agreed to provide support and necessary funds for the establishment of an Immigration Resource Centre in Sri Lanka, the Labour and Foreign Employment Ministry said.
A crucial discussion in this regard was held between the Minister and the Deputy High Commissioner of New Zealand Andrew Traveller yesterday.
The Deputy High Commissioner told Labour Minister Manusha Nanayakkara that they will provide support and necessary funds for the establishment of an Immigration Resource Centre in Sri Lanka.
A Memorandum of Understanding (MoU) is to be signed between the two countries and it is to be reviewed by the Foreign Affairs Ministry as well as the Cabinet.
New Zealand will provide assistance for a period of three years after the establishment of the centre.
Through this project, programmes are to be implemented to raise awareness among vulnerable people regarding safe migration and foreign employment and it will also play a crucial role in preventing human trafficking and irregular migration.
New Zealand is to fund the establishment of an immigration resource centre in Sri Lanka, the Ministry of Labour and Foreign Employment said today.
The High Commission of New Zealand has informed the Minister of Labour and Foreign Employment Manusha Nanayakkara that it will provide support and necessary funds for the establishment of an immigration resource centre in Sri Lanka.
A crucial discussion regarding this was held between the Minister and the Deputy High Commissioner of New Zealand Andrew Traveller.
A memorandum of understanding is to be signed between the two countries and the relevant MoU is to be reviewed by the Ministry of Foreign Affairs and the Cabinet of Ministers.
The centre, if approved, will be established at an appropriate location chosen by the Sri Lanka Bureau of Foreign Employment (SLBFE). New Zealand will provide assistance for a period of three years after the establishment of the centre.
Through this project, programmes are to be implemented to create awareness among vulnerable people regarding safe migration and foreign employment and it will also play a crucial role in preventing human trafficking and irregular migration.
The Deputy High Commissioner of New Zealand emphasized during the meeting that this project will pave way for further strengthening the relations between Sri Lanka and New Zealand and contribute to the improvement of people’s understanding on matters related to foreign employment.
Colombo (LNW): Sri Lankans have been warned not to fall victim to human traffickers and arrive in Oman without confirmed jobs, after more illegal migrants were repatriated.
The Embassy of Sri Lanka in Muscat Oman in collaboration with the Omani Foreign Ministry and the Department of Immigration of the Royal Oman Police, successfully facilitated repatriation of 32 stranded migrant workers on 17 August 2023, the Embassy said in a statement today.
The migrants had entered Oman on visit/tourist visas with the anticipation of finding jobs and subsequently overstayed their visas without securing proper employment.
The issue of migrant workers arriving on visit/tourist visas and then overstaying due to lack of viable employment has been a challenge faced by many potential workers. From November 2022 to date the Sri Lanka Embassy in Oman has facilitated repatriation of more than 400 stranded migrants with support extended by the Omani authorities.
The Sri Lanka Embassy in Oman identified the group of 32 stranded illegal migrants and their situation was individually assessed to understand their circumstances and requirements.
The Embassy engaged with the respective Government stakeholders in Oman to obtain visa overstay penalty waiver for the said group along with the necessary documentation and travel arrangements for repatriation.
Throughout the repatriation process, the stranded workers were provided with essential humanitarian support, including medical assistance, accommodation, and access to basic necessities by the Sri Lanka Embassy in Oman. The Oman Sri Lanka Social Club and many well-wishers supported the Embassy during this process.
The Embassy strongly advised Sri Lankans not to arrive on visit/tourist visa without confirmed jobs, since many male and female workers are continuing to fall victims to human traffickers and end up in the streets under harsh weather conditions.
Hence, the Embassy requests all Sri Lankans to seek jobs only through licensed agencies and register with the SLBFE before arriving in Oman.
Sri Lanka’s economic crisis has led to an increase in cross-border migration activity through both regular and irregular channels, according to the International Red Cross, which has launched an emergency appeal to address the ongoing humanitarian disaster.
Labour migration to countries in the Gulf and Middle East is also increasing. According to the Department of Immigration and Emigration, over 300,000 Sri Lankan passports were issued in the first six months of 2022, compared to a total of 382,000 passports issued in the whole of 2021.
And, internally, there has been a 30 per cent increase in women joining the sex industry in Colombo since January, according to Stand-Up Movement Lanka (SUML), the country’s leading advocacy group for sex workers.
Colombo (LNW): The Government has decided to approve to purchase of 50 percent of the total supply stipulated in the 2024-2025 contract from the current supplier as a reorder of LP gas to ensure uninterrupted distribution in light of the ongoing restructuring process at Litro Gas Lanka.
It has short-listed transaction advisors to assist in the divestiture of Litro Gas Lanka Ltd including Litro Gas Terminals Ltd (LPG retailing).
For Litro the shortlisted advisors are Asia Securities, Capital Alliance, Platinum, Deloitte, PwC and NDB.
In the wake of divestiture of Litro Gas Lanka, the proposal to extend the LP Gas procuremnet to the present supplier reducing the quantity to 50 percent was presented by President Ranil Wickremesinghe in his capacity as the Finance Minister was approved by the Cabinet of Ministers.
The company’s contract for the supply of 280,000 tons of LP gas set to conclude on 31 December 2023, has prompted authorities to consider a strategic approach to maintain an uninterrupted gas supply.
Sri Lanka’s LP Gas shortage has been handled effectively with the procurement of 280,000 MT of LP from an Oman company OQ Trading last year.
Litro Gas Lanka has taken every necessary actionat that time to provide LP gas filled cylinders to consumers via its network consisting of 42 distributors, approximately 14,000 point-of-sale locations and 1,500 home delivery hubs, a company official said.
“The present plan involves the purchase of 50% of the total supply stipulated in the existing contract from the present supplier as a re-order.
This move is intended to adhere to the Government’s procurement guidelines while also ensuring that the ongoing restructuring process remains unaffected,” Co-Cabinet Spokesman and Minister Bandula Gunawardena said at the post-Cabinet meeting media briefing.
Noting that Litro Gas Lanka’s restructuring process has already begun, he said it appears that signing additional agreements could hurt the streamlining process.
“This strategic manoeuvre is poised to safeguard both the interests of consumers and the successful completion of Litro Gas Lanka Company’s restructuring process,” Gunawardena added.
. As the national LPG provider, Litro Gas has a share of over 90% of the market. Industrial sectors such as the tile industry, confectionaries, rubber, glass, and the hospitality sector depend on LPG. As such, Litro has been key to Sri Lanka’s growth for over a century.
Litro Gas was amongst the many organisations that had to contend with a plethora of challenges.
Apart from the dollar shortage, the implementation of short-sighted policy meant that a once profitable organisation was now riddled with debt whilst suffering from major losses.
With the appointment of Muditha Peiris who served as the Managing Director of Litro on June 15, 2022, as the new Chairman of the company, the state-run gas supplier and Litro Gas Terminal Lanka (Pvt) Ltd have been turned round to a profitable venture.
Colombo (LNW): Sri Lanka plans to introduce an electric public transport system with 200 buses in the Western province around Colombo while seeking investors for the implementation of the novel venture Minister of Transport Bandula Gunawardana said.
The ministry of transport had earlier called for expressions of interest for 50 electric buses, but the investment cost of charging points made the project unviable, he said adding that feedback indicated that 200 to 500 buses are needed to make such a project viable.
This proposal of introducingelectric busses comes to light 122 years after the operating of tram public transport service using electric powred tramcars, and later it was replaced with trolley busses including double and single deckers to solve Colombo’s transport problems more efficiently.
Population of Colombo increased as over the years it had been the administrative and commercial centre rapidly developpig economically at that time.
Therefore, it was a very busy city, because the Port, schools, banks, shops, government offices, main hospitals and various educational institutions were available here. Hence, many people came to the Colombo city for their work.”
This effienttrolly bus transport system for comuters travelling in and out of Colombo city limits came to an abrupt end as aresult of the nationalization of private passenger transport service during SWRD Bandaranayake regime and the subsequent strike of trolly bus strike in 1964.
In the latest move to solve passenger trans port diffuclty in the Western province specially in Colombo City, the cabinet of ministers had now approved a 200-bus project, which will be run in collaboration with state-run Sri Lanka Transport Board.
“It will be a build operate transfer style project for a number of years,” Minister Gunawardana said, adding that any investor from Korea, or China or UK could express interest.
“They could also propose terms and the period.”The SLTB had no resources to invest in electric buses, he said. Once the investors earned back his return the assets will go the SLTB.
The buses will operate on existing SLTB routes in the Western province.Electric buses are found in India, Bangladesh, Singapore, South Korea and Japan.
When the electric buses come, 200 SLTB buses will be withdrawn from the Western province and deployed in provincial routes
During the good olden days the tramcar system was introduced in many countries in the beginning of the 20th century. Then it came to Ceylon.
On 11 January 1900 the Ceylon Electric Tramways opened the country’s first tramway for public service] with the ‘Grand Pass Route’ being the first section to open, followed by the ‘Borella (Maradana) Route’.
The tramways was eventually brought under Colombo Electric Tramways and Lighting Company Ltd after its formation in 1902, the same company that built the Pettah Power Station.
The Pettah Power Station was the second power station established in the country and was used to power the tram network, mercantile offices, government buildings and street lights.
The whole of the track on both routes was relaid with 43 kg (95 lb) rails between December 1905 and August 1907, with all joints being welded by thermite process.
The cultural arm of the High Commission of India in Colombo, Swami Vivekananda Cultural Centre (SVCC), will observe the World Sanskrit Day for the first time in Colombo on 31 August 2023.
2. An academic and cultural event will be held at the Bandaranaike Centre for International Studies, BMICH, Colombo on 31 August at 2 pm. On the occasion of the silver jubilee of SVCC, the event is being organised in collaboration with University of Kelaniya, University of Sri Jayewardenepura, Faculty of Indigenous Medicine of the University of Colombo, Buddhist and Pali University, Gampaha Wickramarachchi University of Indigenous Medicine, Bhiksu University, Units of Pirivena, National Institute of Education, University of Jaffna, University of Peradeniya, Eastern University and Bandaranaike Centre for International Studies.
3. The event will be inaugurated by the High Commissioner of India H.E Gopal Baglay and the State Minister for Higher Education Dr. Suren Raghavan will attend as the Chief Guest. The students and scholars of Sanskrit from across the country will participate in the event. Veteran Sanskrit scholars of Sri Lanka will also be felicitated on the occasion of World Sanskrit Day.
4. Sanskrit is among the oldest surviving languages and is a sacred language in several traditions. It is a repository of ancient knowledge including the Vedas and other renowned literary works such as the Yoga Shastra. Sanskrit is also known as the mother of many present day languages such as Hindi and Sinhala. The celebration of World Sanskrit Day will underscore the centuries old shared heritage of India and Sri Lanka.
Colombo (LNW): There is a possibility of enhancing the prevailing showery condition in south-western part of the Island during 01,02 and 03 of September, announced the Department of Meteorology in its daily weather forecast today (31).
Showers will occur at times in Western, Sabaragamuwa, Central and Northwestern provinces and in Galle and Matara districts, and fairly heavy showers about 75mm are likely at some places in Western and Sabaragamuwa provinces and in Galle and Matara districts, the statement added.
Showers or thundershowers will occur at several places in Eastern and Uva province and in Polonnaruwa, Vavuniya and Mullaitivu districts during the evening or night.
General public is kindly requested to take adequate precautions to minimise damages caused by temporary localised strong winds and lightning during thundershowers.
On the apparent southward relative motion of the sun, it is going to be directly over the latitudes of Sri Lanka during 28th of August to 07th of September in this year. The nearest towns of Sri Lanka over which the sun is overhead today (31) are Adappankulam (Vavuniya District), Dutuwewa(Anuradhapura District) and Nilaveli(Trincomalee District) about 12.11 noon.
PMD: In a significant diplomatic exchange, United States Senator Chris Van Hollen, currently on a visit to Sri Lanka, had a productive meeting with President Ranil Wickremesinghe. The meeting took place at the President’s House in Kandy yesterday afternoon (30).
The meeting was attended by Senior Advisor to the President on National Security and the Chief of Presidential Staff Mr. Sagala Ratnayaka and Julie Chung, the American Ambassador to Sri Lanka.
The CB has a practice of issuing such short publications as Guides to specific functions of the CB to make the general readers aware of the nature of such functions. However, this publication attempts to present highly conceptual and theoretical materials that are controversial among the economists and policymakers whereas its use to general readers is very limited.
Therefore, this article does not comment on diverse texts carried the publications but highlights a few of graphical materials of the publication to establish the technical inappropriateness of the publication.
My comments are given on following 7 figures presented in the publication.
Comment 1 – monetary policy evolution
The CB never followed such different approaches of the monetary policy as presented in figure 3 above. What the CB has ben pursued are the diverse policy actions permitted in the Monetary Law Act (MLA) since 1950. In general, the objective of the monetary policy is the stabilization of the economy through the use of appropriate policy actions and targets based on exchange rates, interest rates, credit flows, foreign currency flows, money printing, money supply, etc., as authorized in the MLA depending on sources of instabilities confronted by the economy from time to time.
The areas of instabilities are the general prices, national product and income, employment and international balance of payment. Therefore, the policy evolution presented in the publication in the form of different frameworks and operating targets is meaningless. Further, CB Annual Reports should have presented them as applicable if they were really pursued by the Monetary Board. Comment 2 – decision making process
The presentation in figure 4 above is incorrect in terms of relevant provisions and powers in the MLA. What is presented in the figure is only the internal divisions of CB operations. However, the Monetary Board and the CB Governor are the monetary policy decision-makers. Economic Research Department carries out only the research function to advise and guide the Monetary Board. Therefore, Monetary Policy Committee and Market Operations (MOC) Committee are unofficial groups.
For example, MOC has no mandate to decide on foreign exchange operations or domestic money market operations. They all are decided by the Governor. Departments of Domestic Operations and International Operations undertake only clerical jobs. That is why officials of those Departments are not responsible for chronic liquidity problems of domestic currency and foreign currency confronted by the economy at present.
Comment 3 – open market operations
This figure 8 is grossly incorrect. CB’s liquidity/money printing operations are carried out primarily based on targeting of the inter-bank overnight interest rates and not on short-term rates. The policy interest rates corridor and standing facilities window (overnight standing deposit and lending operations of the CB) are the primary sources of this liquidity managements.
Therefore, repos, reverse repos and outright trades of securities are only residual operations to mitigate the excessive pressures in the inter-bank market. Further, the differentiation between the temporary basis and permanent basis on the liquidity management is only a hypothetical presentation and the CB does not provide separate information in this regard.
Further, all these are hypothetically presented operations and there are no statistical models or internal controls under audit to decide the preferred policy interest rates, overnight inter-bank interest rates and required liquidity.
Comment 4 – effect of SRR
The presentation of the impact of changes in SRR as presented in figure 9 is based on the old text book hypothesis of money creation on bank deposit-taking business (i.e., lending money out of deposits after allocating funds for the SRR and additional reserves at hand).
However, in modern banking and monetary systems operating in electronic money and banking, credit is granted in bank book entries by creating deposits for borrowers whereas such deposits change hand without leaving the banking system. Therefore, deposits are created by bank credit business whereas deposits are a source of the wider liquidity management of banks among other liquidity sources such as borrowings and asset sales. Therefore, changes in SRR do not affect the ability of banks to create money/credit but affect the liquidity management. Banks also can borrow from the CB and maintain SRR in response changes in credit and deposits.
Comment 5 – purpose of OMO
The response of the teacher in the above figure is grossly incorrect. The CB conducts open market operations only for maintaining overnight inter-bank interest rates within the targets (i.e., policy interest rates corridor) through the changes in the inter-bank liquidity. Therefore, the CB does not announce any targets of wider money market interest rates and liquidity for the open market operations. In addition, the CB uses open market operations to fund the government fiscal operations too.
In the case of overnight inter-bank rates target, the immediate action is the standing facility window of the CB and, therefore, open market operation as already presented in figure 8 is only a subsidiary operation.
Comment 6 – transmission mechanism
The figure 10 is just a presentation of a hypothetical transmission of the monetary policy tools on the inflation or general prices through all other economic activities in the economy. However, the CB has never identified the time lags and the impact of policy changes on each economic sector/variable presented in the figure. Therefore, there is no any application of the presented transmission in the conduct of the monetary policy.
Further, there are several technical defects in the presentation.
First, the supply side of the economy that determines all economic activities and inflation is left out in the presentation. Therefore, the model assumes that inflation is fully determined by the demand side of the economy.
Second, the monetary policy also affects the supply side of modern monetary economies through credit flows to production activities. Therefore, it is incorrect to assume that the monetary policy affect inflation only through the demand side of the economy. In fact, in modern monetary economies, demand and supply cannot be separated with time lags as presented in the old monetary theory as they operate together.
Third, the presentation of inflation expectation as the second channel of the monetary policy to determine the inflation is highly exaggerated as nobody has any research to establish that monetary policy actions guide inflation expectations of the public in real economies. The assumption behind this is that the general public believe the monetary policy as the inflation buster and, therefore, they use the inflation target announced in the monetary policy as the expected inflation for their economic activities. This is a grossly incorrect presumptuousness as there is no real world data to prove that the inflation is always controlled by the monetary policy. The best example is the four-decade high inflationary pressured confronted by the global economy during the past two years.
Fourth, the CB’s objective required in the MLA is not the inflation control as presented in the above incorrect transmission figure, but is it is the wider stability of the economy covering economic and price stability and financial stability. Therefore, the CB cannot manipulate monetary policy actions as it wishes which exposes the economy to different crises such as the present foreign currency and debt crisis.
Comment 7 – effects of policy interest rates
The presentation given above to highlight the impact of policy interest rates is grossly incorrect. Policy interest rates are risk free interest rates of the CB on its secured overnight credit operations with banks.
However, interest rates on deposits and borrowing/lending in the banking system are determined by pricing of risks associated with underlying monetary/credit transactions. As such, changes in policy interest rates do not change bank risks involved in depositors and borrowers. Such risks are determined by factors outside risk free policy interest rates.
Therefore, depositors and borrowers do not behave in the manner presented in the figure and they are even not aware of policy interest rates. However, banks may tend to change deposit and lending interest rates in response to changes in policy interest rates if the CB passes unethical threats to banks.
The purpose of policy interest rates in fact is to influence overnight inter-bank interest rates through standing facilities.
Concluding Remarks
This booklet is the real evidence for incorrect premise presumptuously used by the CB for the conduct of its monetary policy. Therefore, the failure of the monetary policy to stabilize the economy as evident by the present economic crisis is not a surprise.
Therefore, relevant authorities need to assess the contents of such public documents and ensure that policy authorities perform their public duties as provided for in relevant legislations in the public interest only, irrespective of their presumptuous objectives and operational models.
(This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures.)
P Samarasiri
Former Deputy Governor, Central Bank of Sri Lanka
(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 12 Economics and Banking Books and a large number of articles published.
The author holds BA Hons in Economics from University of Colombo, MA in Economics from University of Kansas, USA, and international training exposures in economic management and financial system regulation)
