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‘Yukthiya’ only a media show? Police HQ says Operation failed to meet key objectives

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October 01, Colombo (LNW): An internal investigation conducted by the Police Headquarters has revealed that the ‘Yukthiya’ operation, aimed at curbing drug-related activities, has fallen short of its intended goals.

The operation, which was widely publicised, failed to produce a noticeable increase in drug-related arrests compared to previous years, according to senior officers.

Senior police officials have reported to the Acting Inspector General of Police that the operation largely appeared to be a media spectacle rather than a successful law enforcement initiative.

They pointed out that instead of targeting high-level drug dealers, many of the individuals arrested during the operation were people with past involvement in drug trafficking, but who had since moved away from the illegal trade.

This has raised concerns about the validity and fairness of the arrests, with claims that many of those detained were simply drug users rather than key figures in the drug trade.

Further concerns were raised over the inclusion of drugs seized by the Navy during off-shore raids, which were presented as part of the ‘Yukthiya’ operation.

This, according to sources, contributed to a misleading narrative about the success of the initiative.

Additionally, the investigation has highlighted the disruption caused to routine police duties, as officers were redirected to focus on ‘Yukthiya’.

The operation, believed by some to have been politically motivated, diverted significant resources from regular police work, affecting law enforcement activities at local police stations.

In response to the growing concerns, the Acting Inspector General has since returned officers involved in the operation to their standard duties.

Despite the reported shortcomings of ‘Yukthiya’, the Police Headquarters has affirmed that efforts to combat drug trafficking and organised crime remain ongoing in a structured and organised manner.

Meanwhile, both the National Police Commission and the Sri Lanka Human Rights Commission (HRCSL) have received numerous complaints from individuals claiming they were wrongfully arrested during the operation.

These complaints add to the growing scrutiny of the initiative and its impact on citizens.

The ‘Yukthiya’ operation, initially launched with the promise of tackling the underworld drug trade, now faces questions over its execution and effectiveness, casting doubt on the overall strategy employed to address one of Sri Lanka’s most pressing issues.

DFCC Bank pioneers green bonds on CSE, driving sustainable investment

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October 01, Colombo (LNW): In a significant milestone for Sri Lanka’s financial sector, DFCC Bank launched its first Green Bonds on the Colombo Stock Exchange (CSE), marking a major step towards addressing environmental challenges through sustainable finance.

This move allows investors to contribute to the fight against climate change while seeking financial returns, creating a mutually beneficial scenario for both the environment and the market.

Takafumi Kadono, Country Director for Sri Lanka at the Asian Development Bank (ADB), stressed the importance of green financing, highlighting its potential to save significant costs associated with post-disaster recovery.

He pointed out that natural disasters, such as floods, inflict heavy losses on the agricultural sector and other industries, with Sri Lanka spending approximately USD 313 million annually on climate-related disaster mitigation.

Kadono underscored the necessity for businesses to invest in projects that can prevent such climate-induced damage, opening new avenues for corporate investment.

Chairman of the CSE, Dilshan Wijesekera, lauded DFCC Bank for its leadership in entering the green finance space, describing it as a bold move that signals the nation’s commitment to environmental sustainability. He remarked,

“Today, we are not just ringing the bell for a new financial product, we are taking a decisive step towards a greener nation.”

DFCC’s green bond issuance was met with overwhelming investor interest, being oversubscribed, reflecting a strong demand for sustainable and environmentally friendly investment options.

Wijesekera added that the CSE offers numerous fundraising avenues and expressed his optimism that more companies will follow DFCC’s example in exploring green finance initiatives.

On a global scale, sustainable bond issuance surpassed a trillion dollars in 2023, driven by record green bond sales. Sri Lanka’s entry into this growing market aligns it with international efforts to combat climate change and promote environmental responsibility.

The move represents an invaluable opportunity to attract responsible investments that not only enhance the resilience of the capital market but also encourage businesses to innovate and adopt eco-friendly practices.

DFCC Chairman, Jegan Durairatnam, noted that the bank has a long history of introducing pioneering financial solutions, with green bonds being the latest in its line of innovative offerings.

He stressed that the bank’s efforts to promote this product included one-on-one meetings with potential issuers, organising forums and technical workshops, and collaborating with international agencies such as the ADB, IFC, UNDP, and the French Embassy.

Applications for Postal Voting open ahead of General Election

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By: Isuru Parakrama

October 01, Colombo (LNW): Applications for postal voting in Sri Lanka’s upcoming General Election, scheduled for November 14, are now being accepted.

The Election Commission announced that postal voting applications will be open until October 8, offering a week-long window for eligible voters to submit their requests.

This year’s election will use the 2024 certified voter list, which has now been made accessible across all electoral divisions.

To ensure convenience for postal voters, the Commission has arranged for these lists to be displayed at various public locations, including District and Divisional Secretariats, Grama Niladhari offices, and other selected venues.

In addition to being available at these physical locations, postal voting applications can be obtained free of charge from District Election Offices or downloaded from the Election Commission’s official website.

The Commission emphasised the importance of submitting applications on time, noting that all forms must be handed over to the relevant District Returning Officer by the October 8 deadline.

SJB calls for RW’s resignation from UNP leadership as condition for alliance ahead of General Election

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October 01, Colombo (LNW): The Samagi Jana Balawegaya (SJB) has called for the resignation of United National Party (UNP) leader Ranil Wickremesinghe as a key condition for forming an electoral alliance ahead of the upcoming General Election.

Former MP Harshana Rajakaruna stated that the SJB is open to integrating UNP members into its ranks, but only if Wickremesinghe steps down.

Rajakaruna made it clear that UNP members should consider aligning with the SJB rather than staying with the UNP under its current leadership.

“Those still supporting Mr Wickremesinghe can remain in Sirikotha, but we invite the majority of UNPers to join the SJB. We have repeatedly asked Mr Wickremesinghe to resign, but he has yet to do so,” Rajakaruna explained during a briefing.

He also expressed doubts about whether the UNP leadership would be handed over to the SJB even if Wickremesinghe were to step aside.

At the same time, a grassroots movement within the UNP is reportedly gathering momentum, with resolutions in favour of Wickremesinghe continuing as party leader being passed in several districts, including Galle.

UNP Chairman Vajira Abeywardena offered a different perspective, advocating for the formation of a common opposition alliance as the most viable strategy for the General Election.

“Given the current political landscape, uniting opposition parties would be the best course of action. This approach would strengthen our position and provide a unified front for the General Election,” Abeywardena said.

He added that, in light of the main opposition’s prolonged inability to secure power in the last seven decades, a common alliance could offer a new pathway forward.

The UNP is currently exploring the possibility of reaching consensus with other opposition parties to contest as a collective force, and further details are expected to be shared in the coming weeks.

President pledges to restore joyful childhoods, tackle key challenges on World Children’s Day

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By: Isuru Parakrama

October 01, Colombo (LNW): Marking World Children’s Day, President Anura Kumara Dissanayake reaffirmed his government’s commitment to nurturing the well-being of children by addressing the barriers that stifle their growth and happiness.

In a heartfelt message, he expressed the government’s vision to reclaim the carefree and joyful childhood that every child deserves, while also ensuring that harmful social prejudices and the pressures of exam-centric education are tackled head-on.

The President highlighted a range of critical issues affecting children today, including poverty, malnutrition, inadequate healthcare, environmental degradation, and the widening gap in educational opportunities.

He also pointed to the dangers posed by substance abuse and the misuse of technology, both of which can have lasting negative effects on children’s development.

Dissanayake underscored the need to free children from the burdens that hinder their psychosocial development, with a renewed focus on fostering a supportive and enriching environment.

“By nurturing a generation of children who are healthy in both mind and spirit, we will raise compassionate, independent, and imaginative individuals who will contribute to a brighter and more harmonious future,” he said.

The President further outlined the government’s priorities, which include promoting economic stability to uplift families out of poverty, fostering a culture of mutual trust and respect within communities, and protecting the nation’s environmental heritage.

He emphasised the importance of holistic support for children’s development, where kindness, acceptance, and personal freedom are key to shaping well-rounded individuals. In addition, he called for political transformation to ensure these goals are met.

In this new “renaissance era,” as President Dissanayake termed it, the government is committed to not only addressing children’s immediate needs but also cultivating a society that encourages curiosity, creativity, and empathy in the next generation.

Full Statement:

World Children’s Day 2024

The future belongs to our children.

Let’s dedicate ourselves to creating a better world for them.

We have identified several significant challenges facing today’s children, including poverty, malnutrition, inadequate health and sanitation, environmental degradation, educational disparities, social inequalities, and the risks associated with substance abuse and technology misuse.

Our mission in this renaissance era is to free children from harmful prejudices and social effects, and the pressures of exam-focused education, which hinder their psychosocial development. We aim to reclaim the joyful, carefree childhood that every child deserves.

By nurturing a generation of children who are healthy both in mind and spirit, we can foster compassionate, independent, and imaginative individuals who will shape a better future.

To achieve this, we are committed to promoting economic freedom, fostering human kindness, building mutual trust, and encouraging respect and acceptance within society. Additionally, we prioritize the protection of our rich environmental heritage and advocate for necessary political transformation.

This is a shared responsibility for all of us!

Sri Lankans urged to avoid travel to Lebanon and Syria amid regional instability

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By: Isuru Parakrama

October 01, Colombo (LNW): The Ministry of Foreign Affairs has issued an urgent advisory, instructing Sri Lankan citizens to refrain from travelling to Lebanon and Syria due to the escalating conflict in the region.

The directive comes in response to growing volatility, with heightened security risks across both countries.

Sri Lankan nationals currently residing in Lebanon and Syria are being strongly advised to exercise extreme caution, limiting their movements outside and staying in close contact with the Sri Lankan diplomatic missions.

The Foreign Ministry emphasised that individuals should maintain regular communication with the Sri Lankan Embassy in Beirut or the Honorary Consul in Damascus to ensure their safety.

To facilitate emergency assistance, the ministry provided key contact points. In Lebanon, Sri Lankans can reach out to Mr. Sanath Balasuriya and Ms. Priyangi Dissanayake via emergency hotlines, while Dr. Al Droubi, the Honorary Consul in Syria, remains available for immediate assistance.

Email ID:
[email protected]

Hotlines:
0094 771102510 – Mr. Sanath Balasuriya 
0094 718381581 – Ms. Priyangi Dissanayake
00961 81485809 – Mr. Fahd Hawwa 

Honorary Consul of Sri Lanka in Damascus, Dr. Al Droubi: 
Email ID: [email protected] 
Phone: 00963 944499666, 00963 933858803

This travel advisory coincides with an ongoing conflict that has intensified over the past year, following a series of violent clashes between Israel and Hamas militants. What began in Gaza has expanded to other parts of the region, with Israel recently launching significant airstrikes against Hezbollah targets in Lebanon—the largest such strikes in nearly two decades.

The conflict has raised concerns about broader regional instability, affecting nations such as Syria and Lebanon.

Further updates will be provided as the situation develops.

IMF delegation to hold key discussions with SL’s new leadership

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By: Isuru Parakrama

October 01, Colombo (LNW): A high-ranking delegation from the International Monetary Fund (IMF), headed by Krishna Srinivasan, Director of the Asia Pacific Department, is set to visit Colombo from October 02 to 04 this year.

The visit aims to engage with President Anura Kumara Dissanayake and the newly appointed economic team as part of efforts to assess and support Sri Lanka’s ongoing economic reforms.

The IMF delegation will review the country’s economic progress, focusing on the latest developments and the implementation of reforms under the current IMF-backed economic programme.

This programme, designed to address Sri Lanka’s fiscal challenges, emphasises economic stability, restructuring state-owned enterprises, and strengthening anti-corruption measures.

An IMF spokesperson confirmed the visit, stating that the discussions will be pivotal in guiding Sri Lanka’s path to recovery.

The visit is also expected to offer insights into how the country can further stabilise its economy in the aftermath of a significant financial crisis that has impacted its industries, employment, and public services.

The meetings with President Dissanayake and his economic advisors are seen as crucial in ensuring that the economic reform plan remains on track.

It will also allow Sri Lanka’s new leadership to outline their vision for sustainable growth, particularly in light of the global economic downturn and domestic fiscal constraints.

The IMF team is expected to issue a statement at the conclusion of their visit, providing an overview of the outcomes and the next steps for Sri Lanka as it seeks to navigate its way through a fragile economic recovery.

Showers, thundershowers expected to continue across island (Oct 01)

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By: Isuru Parakrama

October 01, Colombo (LNW): Showers or thundershowers will occur over most parts of the Island during the afternoon or night, with fairly heavy showers above 50 mm being expected to occur at some places in Central, Sabaragamuwa, North-western and North-central provinces, the Department of Meteorology said in its daily weather forecast today (01).

Showers may occur in Southern province during the morning too.

The general public is kindly requested to take adequate precautions to minimise damages caused by temporary localised strong winds and lightning during thundershowers.

Marine Weather:

Condition of Rain:
Showers or thundershowers may occur at several places in the sea areas around the island during the afternoon or night. Showers may occur at several places in the sea areas off the coast extending from Galle to  Pottuvil via Hambantota.
Winds:
Winds will be Southerly or variable in direction in the sea areas around the island and wind speed will be (25-35) kmph.
State of Sea:
The sea areas around the island can be slight to moderate. Temporarily strong gusty winds and very rough seas can be expected during thundershowers.

Sri Lanka Original Narrative Summary: 01/10

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  1. A high-level IMF delegation, led by Asia Pacific Director Krishna Srinivasan, will visit Colombo from October 2-4 to meet President Anura Kumara Dissanayake and Sri Lanka’s new economic team: The visit aims to discuss recent economic developments and reforms under the IMF-supported economic programme: The delegation will issue a statement at the end of the visit.
  2. Samagi Jana Balawegaya (SJB) Legal Secretary Farman Cassim submits a Right to Information (RTI) request for details about privileges allegedly requested by Ranil Wickremesinghe’s Security Head on behalf of the former President: SJB’s Weligama Organiser Rehan Jayawickrama confirms that his party filed the application and is awaiting a response from the former President’s office regarding the purported letter.
  3. Former MP Wimal Weerawansa says the distinction between the Janatha Vimukthi Peramuna (JVP) and the National People’s Power (NPP) is now clear, with the latter in power: expresses hope that the NPP will improve the country but noted that every new government, like Gotabaya Rajapaksa’s, goes through a honeymoon phase before revealing its true nature.
  4. Ministry of Foreign Affairs advises Sri Lankan nationals not to travel to Lebanon and Syria due to regional instability: Sri Lankans in these countries are urged to remain vigilant, limit movements, and stay in regular contact with local embassies: Emergency contacts and emails have been provided: This follows intensified conflict between Israel, Hamas, and Hezbollah, with airstrikes targeting Lebanon.
  5. The Ceylon Petroleum Corporation (CPC) announces a fuel price revision effective from midnight on 30 September: Petrol 92 Octane is reduced by Rs. 21 to Rs. 311 per litre, Auto Diesel by Rs. 24 to Rs. 283, Super Diesel by Rs. 33 to Rs. 319, and Kerosene by Rs. 19 to Rs. 183: Petrol 95 remains unchanged at Rs. 377: LIOC and Sinopec have matched these prices.
  6. Sri Lanka’s inflation, measured by the Colombo Consumer Price Index (CCPI), fell to -0.5% in September 2024 from 0.5% in August: Food inflation also dropped to -0.3%, while non-food inflation declined to -0.5%: The overall CCPI decreased to 190.9 from 191.1 in August: Despite these declines, the core inflation index slightly rose to 177.6 in September.
  7. Former MPs have been instructed to return firearms issued to them, following the dissolution of Parliament: Other MP privileges, including allowances, fuel provisions, and staff support, have been revoked: However, former MPs may continue using official residences at the Madiwela Housing Complex until the upcoming election: Unsuccessful candidates must vacate these homes immediately after the election.
  8. As of September 30, only independent candidate M. Premasiri Manage has declared his campaign finances for the 2024 Presidential Poll, adhering to the Regulation of Election Expenditure Act: No major party or other candidate has submitted their financial reports, despite the legal deadline of October 12: Candidates must declare both campaign income and expenses to avoid legal action.
  9. Examinations Commissioner General Amit Jayasundara confirms the decision not to re-conduct the Grade Five scholarship exam remains unchanged: adds free marks will be awarded for the three leaked questions to ensure fairness: stresses examination of answer scripts will begin soon, with results expected before the new school term starts.
  10. Despite a drop in egg prices, several traders have not yet lowered the prices of egg-based food items, despite requests from canteen and restaurant owners: While the All Island Canteen and Restaurant Owners’ Association plans to reduce prices, the bakery sector says reductions depend on wheat flour costs: Rising prices of other ingredients like margarine and vegetables remain unaddressed.

Central bank interest rate – A magic or a natural science or a geo-political bureaucracy?

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Article’s Background

The purpose of this article is to highlight the irrationality and inappropriateness of the Monetary Policy Board (MPB)’s last policy rates decision to keep them unchanged at 8.25%-9.25% as announced on 27 September.

The Central Bank (CB) announced the monetary policy decision at 7.30 morning of 27 September. (press here to read the statement). The prior MPB decision was 25 bps cut announced on 24 July. 

I predicted on 25 September that either MPB would cut policy rates between 25-100 bps or else keep them unchanged at current level of 8.25%-9.25% as policy rate/monetary policy decision is a highly arbitrary bureaucratic decision. (press here to read my article).

Key consideration of the MPB for making the decision

Some of those considerations are reproduced below as appeared in the CB press release. 

  • The Board arrived at this decision after carefully considering the recent and expected macroeconomic developments and possible risks and uncertainties on the domestic and global fronts with a view to ensuring that inflation aligns with the target of 5 per cent over the medium term, while enabling the economy to reach its maximum potential
  • The Board observed that inflation is likely to remain well below the target of 5 per cent over the next few quarters, potentially recording deflation in the immediate future driven by changes to administratively determined prices and easing of supply conditions.
  • Headline inflation softened significantly with the recent downward revisions to the electricity tariffs, and fuel and LP gas prices as well as the overall decline in volatile food prices. Moreover, core inflation, which reflects underlying demand conditions in the economy, also moderated, albeit at a slower pace. 
  • Accordingly, the latest projections confirm that headline inflation is likely to be below the target by a notable margin in the forthcoming months while core inflation is projected to remain around the current levels on average
  • Supported by appropriate policy measures, inflation is expected to gradually align with the targeted level of 5 per cent over the medium term after a likely overshooting in the second half of 2025.
  • Meanwhile, yields on government securities, which came under pressure owing to perceived uncertainties amidst the Presidential election, showed preliminary signs of easing at the Treasury bill auction following the election.
  • The continuation of the Extended Fund Facility arrangement with the International Monetary Fund (IMF-EFF) and early finalisation of the debt restructuring process will support the strengthening of external sector buffers further.
  • The Board noted that the current accommodative monetary policy stance is yielding the expected outcomes, particularly in terms of the continued easing of market lending interest rates, expansion of credit to the private sector, and a strong rebound in domestic economic activity amidst a low inflation environment.
  • The Monetary Policy Board will continue to monitor and assess incoming data on inflation developments and other macroeconomic variables and will adopt data-driven policies as required, going forward.

My comments and concerns

Almost all reasons given above are irrelevant and unjustifiable for the MPB mandate of the monetary policy for inflation target as agreed with the Minister of Finance on 3 October 2023.

  • As per monetary policy framework agreement signed with the Minister of Finance (Read the Gazette here), the inflation target is 5% on quarterly average of the year-on-year CCPI monthly headline inflation for the three months of the corresponding quarter, with a margin up to 2%. Accordingly, effective target is the quarterly inflation of 3% to 7% in any quarter. This means that the mandate of the MPB is to comply with the inflation target on a quarterly basis (three months moving average) for the past. Therefore, the MPB’s only duty is to look at the trend of the quarterly average inflation figure and invoke monetary policy actions it considers fit to get the quarterly average inflation back to 2%-7% target in future. 
  • Therefore, all reasons or macroeconomic outlook and risks stated in the press release are inappropriate. For example, recent price revisions, core inflation, monthly headline inflation, balance of payment developments, foreign reserves and growth factors are not relevant on the monetary policy framework, i.e., policy rate change to achieve the quarterly average inflation target by changing the aggregate demand of the economy suitably. Therefore, consideration of other micro economic information such as prices of selected goods and services, deb restructuring, foreign reserves and potential production is not warranted in the monetary policy. Further, the MPB has no mechanism or mandate to influence those areas through monetary policy. However, previous Monetary Board under the Monetary Law Act had a mandate for balancing the growth, prices and balance of payment, etc., for economic and price stability.
  • The price analysis in the price index is an unwarranted exercise as monetary policy has no instruments to target or influence such individual prices to comply with the inflation mandate. Such price controls are the work of the government. What the MPB should be worried is only the quarterly average inflation number. Therefore, the most part of the press release is out of its mandate and framework.
  • The decision made on the basis of inflation forecast is not rational as the CB inflation forecast itself is unacceptable. The CB itself states that the forecast is nether promise nor commitment. Therefore, inflation forecast has been changed in each monetary policy statement. It is now accepted that inflation forecast of even Bank of England and US Fed are defective. Central banks may predict inflation and economic variables not more than one month or one quarter. No human being can predict present days’ economic outcomes.
  • Expectation of deflationary period without early monetary policy action such as cutting policy rates and printing more money to prevent it is a violation of the MPB’s statutory mandate on inflation target. Deflation is considered as a serious blow on production and employment than inflation.
  • Although past policy statements generally report the status of inflation expectations and its anchoring process by the monetary policy, the present statement does not reveal anything about it or whether the expected deflationary trend is connected with change in inflation expectations. 
  • The near-term and medium-term used for expectations of several key economic outcomes are not specified in calendar times. Therefore, the general public is unable to adjust their economic activities accordingly.
  • Although policy statement mentions about policy consideration to enable the economy to reach its maximum potential, the monetary policy mandate does not cover any potential of the economy. Further, the MPB does not give any indicators for the maximum potential of the economy at present. In fact, lower interest rates are required to promote the economy towards its potential it is below at present. It is no secret that economy’s potential is severely blocked by tight fiscal and monetary policies and continued supply chain disruptions as shown by alarming magnitude of migration of youth and skilled professionals seeking employment overseas.
  • A strong policy rate cut was expected due to several valid reasons as highlight below.
  • First, inflation has been closer to zero from March this year as compared to the peak of 70% in September 2022. However, the reduction in policy rates has been only 7.25% so far from May 2023 in total of six occasions. Two jumbo rate cuts of 4.5% was announced in May and July 2023 when inflation was in the range of sugar high 35%-25%. Therefore, keeping policy rates at still high 8.25%-9.25% at inflation closer to zero is not justifiable.
  • Second, although press release states that market interest rates have fallen, it is observed that market rates have tended to move up for past three months even for the CB controlled interest rates such as Treasury bill yields and call money rate. Despite the injection of reserves through reverse repo auctions daily around Rs. 40 bn – 60 bn at lower interest rates than SLFR, call money rates recently have been moving towards the upper policy rates corridor from its lower bound (see the charts below). Therefore, market interest rates and policy rates are inconsistent with zero bound inflation. Accordingly, a strong policy rates cut is now necessary to bring market interest rates sustainably down to be in line with zero bound inflation.
  • Third, global central bank community has now commenced a rate cutting cycle after more than two years of rate hiking cycle as inflation has been strongly and sustainably fallen to around the target of 2%. While the cycle started with 25 bps cut by the European Central Bank in last June (second 25 bps cut in September) and Bank of England in last August, it was strengthened by the Fed’s unexpected jumbo rate cut of 50 bps on 18 September even facing the Presidential Election coming up on 5 November. As a result, many central banks are now in the cutting bandwagon. The MBP in the past cited the global rate hike as one reason for steeper policy rates hike in Sri Lanka. Therefore, the MPB has no global reason now to keep policy rates high further because Sri Lankan monetary system is also a dollarized one through capital flows.
  • The MPB’s view that “that the current accommodative monetary policy stance is yielding the expected outcomes, particularly in terms of the continued easing of market lending interest rates, expansion of credit to the private sector, and a strong rebound in domestic economic activity amidst a low inflation environment” to keep policy rates unchanged is factually incorrect and unacceptable due to following reasons.
  • First, what expected outcomes are yielding are not indicated.
  • Second, easing of market lending rates is not correct as market interest rates are now rising as shown above, despite high volume of reserves of banks parked at the CB for risk free return now at 9.25% (see the chart below) with hardly overnight borrowing from at SLFR, partly due to low level of economic activity requiring reserves.
  • Third, private credit expansion is not a matter for the monetary policy framework as its present mechanism is the policy rates, financial conditions/money supply and quarterly average inflation. Private credit is only a sectoral finance matter for the banking sector and government. The new CB does not have instruments for bank credit controls under the monetary policy.
  • Fourth, strong rebound in domestic economic activity is justified with relevant information while domestic economic activity is not a matter for the present monetary policy framework. Further, if the activity had been so strong, the former President would have been re-elected. However, he lost to a brand new political movement.
  • Fifth, the link between the economic activity rebound and low inflation environment is not provided in the policy statement.

Remarks

  • In view of comments and observations made by me as above, the MPB’s decision to maintain policy interest rates unchanged at 8.25%-9.25% is irrational and arbitrary while reasons given for the decision are incorrect and irrelevant. Almost all contents are meaningless jargon that nobody understands.
  • The current level of policy interest rates of 8.25% and 9.25% on risk free and cost free money printing operations has no economics for a bankrupt economy with sky-rocketed cost of living as such high interest rates worsen the economy.
  • In common business sense, a jumbo policy rate cut of at least 2%-3% is now required to spearhead a new dynamism of the economy in order to recover from the present bankruptcy status.
  • Keeping interest rates unchanged while global interest rates are falling in low inflation environment is an indication of the MPB using it monetary policy unlawfully for other motives such as raising foreign reserve buffer through hot capital inflow on rising interest differential.
  • It is reported that the even the IMF who is the architect of Sri Lankan monetary policy is also now not happy with present two policy rates (rates corridor) system with ample lending to primary dealers for on lending to the government although the system was set up under the assistance of the IMF/World Bank.
  • The CB cannot do all economic wonders under the sun through its policy interest rates as it is not a magician or scientist but a geo-political bureaucrat managed by people of politics, not of divine.  
  • Therefore, the system of the present monetary policy requires a major revamp to make it advantageous to the general public of the presently bankrupt economy which is to be managed by a fresh political leadership elected first time by voters after 75 years.

 (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. All are personal views of the author based on his research in the subject of Economics which have no intension to personally or maliciously discredit characters of any individuals.)

P Samarasiri

Former Deputy Governor, Central Bank of Sri Lanka

(35 years of staff grade service in the Central Bank, a 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 13 Economics and Banking Books and a large number of articles published.)

Source: Economy Forward