The Intertropical Convergence Zone (where winds from the Northern Hemisphere and Southern Hemisphere converge) further affects the island’s weather.
Showers or thundershowers will occur at several places in Western, Sabaragamuwa, Central, Southern, Uva, Eastern and North-central provinces after 1.00 p.m.
Fairly heavy falls about 75 mm are likely at some places in Western, Sabaragamuwa, Central, Southern and Uva provinces.
Showers or thundershowers may occur at a few places elsewhere of the island during the afternoon or night.
Showers or thundershowers may occur in Western and Southern provinces and in Puttalam and Mannar districts in the morning too.
The general public is kindly requested to take adequate precautions to minimize damages caused by temporary localized strong winds and lightning during thundershowers.
Misty conditions can be expected at some places in Central and Uva provinces and in Ampara and Polonnaruwa districts during the morning.
May 02, Colombo (LNW): Sabaragamuwa University has initiated a formal internal inquiry following the sudden and deeply troubling death of a 23-year-old undergraduate, Charith Dilshan, a second-year student enrolled in the Department of Engineering Technology.
The incident, which has sent shockwaves through the academic community, has raised serious concerns over the possible involvement of hazing practices.
The university’s administration has constituted a special three-member investigative committee, led by Senior Professor A.A.Y. Amarasinghe. Professor Kapila Rathnayaka and legal expert Attorney-at-Law Y.S. Chandrasekara have also been appointed to the panel.
Their mandate is to carry out a comprehensive review of the circumstances surrounding the student’s death and to submit their findings at the earliest opportunity.
In a statement issued by Vice-Chancellor Professor Sunil Shantha, the university expressed its deep sorrow over the loss and affirmed its commitment to uncovering the truth behind the incident.
The administration has pledged to support the inquiry with full transparency and seriousness.
The tragic event has stirred further concern after a fellow student lodged a formal complaint with the Samanalawewa Police, claiming that the deceased had endured ragging—an entrenched form of bullying and harassment often reported in Sri Lankan universities.
According to the complaint, Dilshan may have succumbed to psychological pressure stemming from such treatment, leading to his decision to take his own life by hanging.
Initial reports suggest that Dilshan, known amongst peers as a quiet and dedicated student, had shown signs of emotional distress in the days leading up to his death.
The allegation of ragging being a contributing factor has brought renewed scrutiny to campus safety and student welfare, reigniting the national debate on the persistent issue of institutionalised abuse in higher education.
Authorities have yet to release further details regarding the ongoing police investigation, but both criminal and administrative inquiries are expected to proceed in parallel.
The university has called upon students and staff to cooperate fully with investigators and has assured the community that necessary action will be taken based on the committee’s recommendations.
The case has also prompted broader calls for reform, with student groups and civil society organisations urging a crackdown on ragging culture and the introduction of more effective mental health support systems on campus.
May 02, Colombo (LNW): The suspended Inspector General of Police (IGP) Deshabandu Tennakoon has formally requested state protection following alleged death threats linked to powerful underworld figures, reigniting national debate on the legal entitlements of individuals facing legal proceedings. The development has prompted a broader discussion on whether individuals under suspension, arrest, or bail are entitled to personal protection under Sri Lankan law when facing credible threats to their lives.
Tennakoon, who has been suspended over serious allegations and is currently out on bail, submitted a written request for protection to Acting IGP Priyantha Weerasuriya on May 1. The appeal cites intelligence reports pointing to threats from organized crime syndicates, including fugitive underworld leader “Kanjipani Imran,” believed to be orchestrating criminal activities from overseas.
Authorities have confirmed that a formal threat assessment is currently being conducted. If a credible risk is established, appropriate security measures are expected to be reinstated.
Legal Framework: Protection Regardless of Legal Status
Despite Tennakoon’s suspension and ongoing investigations, legal experts emphasize that Sri Lankan law does not disqualify individuals from state protection solely based on their legal status. According to the Assistance to and Protection of Victims of Crime and Witnesses Act, No. 4 of 2015, individuals who are threatened due to their involvement in legal processes as witnesses, complainants, or even accused are entitled to protective measures.
Senior Attorney-at-Law Dinesh Abeywickrama stated, “The right to life and protection from harm is fundamental. Whether someone is a suspended official, under bail, or even convicted, if there is a verified threat, the state is obligated to act.”
This provision is supported by Article 11 and Article 12 of the Constitution of Sri Lanka, which guarantee equality before the law and protection from cruel, inhuman, or degrading treatment or punishment.
A closely related case involves Matara Deputy Inspector General of Police (DIG) Nishantha Soysa, who also sought protection after allegedly receiving threats subsequent to testifying in the investigation against Tennakoon.
The Matara Magistrate’s Court ordered security for DIG Soysa, acknowledging the legitimacy of the threats and reinforcing the judiciary’s willingness to safeguard individuals regardless of their current role or status.
Investigations and Legal Oversight
The Criminal Investigation Department (CID) has launched an official probe into the threats made against Tennakoon. With judicial approval, statements will be recorded from two suspects currently held at Boossa High Security Prison.
Meanwhile, a Committee of Inquiry (CoI) led by Supreme Court Justice Preethi Padman Surasena continues to examine the allegations against Tennakoon, supported by high-ranking legal and police officials.
The CoI is scheduled to convene again this week in Parliament and has prioritized Tennakoon’s case due to its complexity and public interest.
Government Response and Political Implications
Minister of Public Security Ananda Wijepala confirmed that Tennakoon’s security was withdrawn following his suspension and while he was reportedly evading arrest. However, he added that any formal appeal for protection would be reviewed in line with existing legal protocols.
“Security arrangements are based on current threat levels, not on past positions,” the minister said. “If there is a real threat, we will ensure the necessary measures are taken, regardless of the individual’s legal standing.”
Balancing Justice and Safety
As the investigation unfolds, the case underscores a critical issue in Sri Lanka’s legal and law enforcement landscape: the challenge of balancing judicial accountability with the state’s duty to protect life.
Legal observers stress that if threats are credible, the state’s duty to protect life must override concerns about the individual’s legal or public standing.
Whether Deshabandu Tennakoon’s request results in renewed protection will depend on the findings of the ongoing threat assessment. But the broader legal and ethical implications of this case are already reverberating through the judicial, political, and law enforcement systems.
As the investigation deepens and the CoI proceeds, authorities now face the dual challenge of pursuing justice while ensuring that no person,accused or otherwise is left unprotected in the face of real danger.
May 02, Colombo (LNW): Sri Lanka is set to conduct its first Economic Census in over a decade, a long-overdue move that is expected to reshape the country’s economic policy framework. The Cabinet of Ministers has approved the census to be held in two stages—focusing on agricultural activities in 2025, followed by a comprehensive survey of non-agricultural sectors in 2026.
This initiative marks a pivotal step in addressing Sri Lanka’s urgent need for reliable, up-to-date economic data. The last census, conducted in 2013/14, preceded a series of profound national and global disruptions, including the 2019 Easter bombings, the COVID-19 pandemic, and the unprecedented 2022 sovereign debt default. These events have significantly altered the country’s socio-economic fabric, rendering existing data obsolete and inadequate for policy formulation.
The economic fallout from these crises highlighted the dangers of policymaking in the dark. Without current data, policymakers struggled to identify vulnerable populations, accurately assess employment patterns, or target fiscal support where it was needed most. In this context, the new census promises a much-needed empirical foundation for Sri Lanka’s recovery, reform, and long-term development.
The first phase of the census will zero in on agriculture—a sector employing approximately 25% of the national workforce but plagued by inefficiencies, climate-related vulnerabilities, and inconsistent access to inputs like fertiliser. Timely and granular data can enable targeted reforms in food security, water management, rural income protection, and climate adaptation—areas where one-size-fits-all policies have historically failed.
The 2026 phase will cover the services and industrial sectors, which have emerged as engines of post-crisis recovery, particularly tourism, manufacturing, and IT. However, the high prevalence of informal employment—estimated by the International Labour Organisation at 60%—continues to challenge tax revenue collection, labour market regulation, and social protection systems.
Here, the census could provide critical insights into the structure and distribution of informal work—especially in urban and semi-urban areas—helping authorities design policies that incentivise formalisation, protect workers, and expand the country’s narrow tax base. This could also aid labour reforms aimed at increasing productivity while ensuring basic rights.
Another major benefit is the potential to capture data on emerging sectors and under-reported economic activities—like gig work, digital freelancing, and micro-enterprises—that traditional surveys often overlook. These sectors may not be large in current GDP terms, but they are vital to employment and future growth.
The timing of the census is also strategic, as Sri Lanka implements a reform program supported by the International Monetary Fund (IMF). The insights from the census can be aligned with IMF-backed fiscal targets, allowing for more balanced and equitable policy choices. For example, understanding regional income disparities could inform decentralised budgeting or targeted subsidies.
Crucially, this census must be more than just a data-gathering exercise—it must lead to action. Accurate statistics are essential, but if they are not swiftly translated into responsive, evidence-based policies, the effort risks becoming another missed opportunity in the country’s long road to recovery.
May 02, Colombo (LNW): UNESCO site faces ecological crisis as illegal excavation continues near ancient fortress Sigiriya, the iconic ancient rock fortress nestled in Sri Lanka’s Cultural Triangle, has earned global acclaim as the world’s most welcoming city for 2025, according to Booking.com.
However, this internationally celebrated heritage site now faces a mounting ecological threat: illegal gravel mining within its protected sanctuary.
This historic marvel, constructed in the 5th century by King Kashyapa, is not only a symbol of Sri Lanka’s architectural and engineering brilliance but also a UNESCO World Heritage Site.
Towering over the surrounding jungle, Sigiriya offers breathtaking views and cultural significance that attracts visitors from around the globe. Yet, the serenity of this national treasure is now being shattered by unchecked mining activity.
The Organisation for the Protection of Sigiriya has raised the alarm over the destructive gravel excavation taking place within the sanctuary.
According to its president, Lionel Gunasekara, massive deforestation and deep excavation have already scarred the landscape, all occurring dangerously close to the Department of Wildlife Conservation’s own office. “This destruction has been ongoing for far too long,” Gunasekara lamented. “Despite repeated complaints, the authorities have done nothing.”
Satellite imagery has confirmed illegal activity, a senior wildlife official admitted, revealing that a group of racketeers had been operating without departmental approval. However, there remains uncertainty about who granted these individuals access in the first place.
S.S. Malinda, the Officer in Charge of the Sigiriya Wildlife Conservation Office, stated that his department had issued no permits for such mining operations. “I have not yet identified the individuals responsible, but we will investigate and initiate legal action,” he promised.
Gunasekara, a veteran in the tourism industry since the 1970s, emphasized the absurdity of the situation. “People aren’t allowed to dig toilet pits here due to archaeological laws—so how is large-scale gravel mining happening unchecked?” he questioned.
He has vowed to escalate the issue at the next District Development Committee meeting, calling on both the Department of Wildlife Conservation and the Department of Archaeology to disclose who authorized the destruction.
With Sigiriya gaining global recognition for its hospitality and historical significance, conservationists warn that immediate intervention is critical to protect its fragile ecosystem and cultural integrity. Without urgent action, Sri Lanka risks losing not only a treasured heritage site but also the trust of a global community that values its preservation.
Will the voices of Sigiriya’s protectors finally be heard before it’s too late?
May 02, Colombo (LNW): In a significant boost to Sri Lanka’s ambition of becoming a regional technology hub, IGT 1 Outsourcing Lanka Ltd. (IGT 1 Lanka) has officially joined the Business Centre at Port City Colombo as a new office tenant. A subsidiary of IGT Holding I Sweden AB and sister company to IFS Sri Lanka, IGT 1 Lanka’s expansion underlines the continued confidence of international tech investors in the country’s growing IT sector.
The agreement marks a major milestone in IGT 1 Lanka’s operations, reinforcing its commitment to long-term growth in Sri Lanka. The company, which benefits from the global backing of private equity giants EQT, Hg, and TA Associates, plans to utilize Port City Colombo’s state-of-the-art infrastructure to further scale its services and enhance productivity.
Having already made a mark through IFS’s 27-year presence in Sri Lanka, with over 3,000 tech professionals, IGT 1 Lanka’s move to Port City Colombo adds further momentum to this legacy. By 2027, the company aims to create at least 1,000 direct employment opportunities at its new location, with an initial headcount of approximately 500 employees spread across two leased office buildings in the Business Centre.
As an Authorised Person (AP) under the Colombo Port City Economic Commission, IGT 1 Lanka becomes one of the pioneering global IT firms to operate within the Special Economic Zone of Port City Colombo. The move is expected to accelerate innovation, encourage knowledge sharing, and drive advancements in cutting-edge technologies such as generative AI.
CHEC Port City Colombo Ltd. Managing Director Xiong Hongfeng hailed the partnership, stating: “This instrumental collaboration with IGT 1 Lanka positions Port City Colombo as a next-generation business environment aligned with global technological trends. It supports the growth of a competitive digital economy and contributes to Sri Lanka’s long-term economic development.”
Echoing similar sentiments, IGT 1 Chief Digital and Information Officer and Managing Director of IGT 1 Lanka, Sal Laher, said the company had achieved several key milestones since registering as a Port City entity. These include serving international clients across the Americas and Europe, and building a team of 370 professionals in just nine months. “Signing for two office buildings today marks another major step in our growth strategy and reaffirms our commitment to Sri Lanka,” he noted.
Port City Colombo, operating under a Public-Private Partnership model, reiterated its commitment to facilitating strategic investments and ensuring smooth and efficient regulatory processes in collaboration with both public and private sector stakeholders.
May 02, Colombo (LNW): In April 2025, Sri Lanka reached a crucial staff-level agreement with the International Monetary Fund (IMF) for the Fourth Review of its Extended Fund Facility (EFF) program.
If approved by the IMF Executive Board, the agreement will release around US$344 million in financial support, adding to the US$1.72 billion already disbursed under the program since its inception in March 2023 Mission Chief Evan Papageorgiou said..
The IMF acknowledged that Sri Lanka’s overall performance under the EFF is strong. Notably, the economy rebounded with an impressive 5% growth in 2024, and public revenue rose significantly, with the revenue-to-GDP ratio improving from 8.2% in 2022 to 13.5% in 2024.
This surge is due to extensive reforms in revenue mobilization. In addition, foreign reserves climbed to US$6.5 billion by March 2025, aided by effective central bank interventions. These developments indicate that Sri Lanka is steadily moving out of its post-crisis slump through ambitious fiscal and structural reforms.
However, challenges persist. Approval of the next tranche hinges on two critical prior actions: restoring cost-reflective electr, he disclosed.
While a tariff hike is expected, it has yet to be implemented by the Ceylon Electricity Board (CEB), contributing to ongoing financial losses that burden national debt. IMF officials, while respecting the independence of local regulatory authorities, are urging prompt action to prevent further fiscal damage.
Additionally, Sri Lanka faces external threats. Uncertainty in global trade policy—especially the looming risk of U.S. tariffs on Sri Lankan exports—could undermine economic recovery. The Sri Lankan government has engaged U.S. trade officials in discussions to mitigate tensions arising from a trade surplus.
The IMF supports these diplomatic efforts and encourages continued dialogue to reduce trade friction and secure export stability, he added. .
Debt restructuring is nearing completion, and multilateral partners’ financing assurances are also under review. This marks a vital step toward long-term debt sustainability and investor confidence.
Sri Lanka’s progress reflects effective crisis management and a strong commitment to structural reform. The rebound in growth and fiscal stability is promising, yet the government’s ability to follow through with politically sensitive reforms—such as utility pricing—will determine whether this recovery is sustainable.
Furthermore, maintaining constructive international trade relationships, especially with key partners like the U.S., is essential to buffer against external shocks. While the IMF’s continued support boosts investor confidence, the need for urgent action on domestic reforms cannot be overstated. The current path offers hope, but only if Sri Lanka can balance reform momentum with socio-political stability.
May 02, Colombo (LNW): Sri Lankan President Anura Kumara Dissanayake is set to embark on an official visit to Vietnam from May 04 to 06, 2025, at the invitation of Vietnamese President Luong Cuong.
The visit, which coincides with the 55th anniversary of formal diplomatic relations between the two nations, is expected to deepen political, cultural, and economic cooperation.
During the visit, President Dissanayake will participate as the Guest of Honour at the United Nations Day of Vesak celebrations to be held in Ho Chi Minh City. His keynote address at the international gathering is anticipated to reflect Sri Lanka’s deep-rooted Buddhist heritage and its contemporary commitment to peacebuilding and regional harmony.
In addition to his participation in religious observances, the President’s schedule includes high-level bilateral talks with Vietnam’s head of state and government, as well as with senior members of the Vietnamese Communist Party.
Discussions are expected to cover a broad agenda, including economic collaboration, trade facilitation, and mutual support in regional forums.
The visit will also include the signing of a series of cooperative agreements and memoranda of understanding spanning multiple sectors, including tourism, labour exchange, and vocational training.
Economic diplomacy will be a key component of the agenda, with both countries looking to encourage greater business-to-business linkages and investment flows. Engagements with the Vietnamese business community are planned to encourage partnerships aligned with Sri Lanka’s post-crisis recovery strategy.
Accompanying the President on this diplomatic mission will be Foreign Minister Vijitha Herath, alongside senior officials from relevant ministries. The delegation is expected to play a pivotal role in finalising agreements and laying the groundwork for future bilateral initiatives.
May 02, Colombo (LNW): Former Inspector General of Police (IGP) Deshabandu Tennakoon, who is currently under suspension, has appealed for personal protection following alleged threats to his life by organised crime networks.
The request, lodged in writing yesterday (01), was addressed to Acting Inspector General Priyantha Weerasuriya.
The appeal by Tennakoon, who is facing multiple controversies and legal challenges, comes against the backdrop of fresh intelligence pointing to threats from underworld operatives, including the fugitive gang leader known as “Kanjipani Imran”.
Imran is suspected to be coordinating criminal activity from abroad and is believed to have issued explicit threats against the suspended officer.
Tennakoon, who previously spearheaded several high-profile operations targeting narcotics traffickers and criminal syndicates, now finds himself exposed following the complete revocation of his official security. His vulnerability is reportedly heightened by the backlash from groups disrupted by his aggressive policing tactics during his tenure.
Security officials have confirmed that a threat assessment is currently underway to determine the severity of the risk. If authorities verify a credible threat, reinstatement of security measures is expected.
Public Security Minister Ananda Wijepala, in remarks made to the reporters, confirmed that Tennakoon’s security was withdrawn after his suspension and during a period in which he had avoided arrest.
Nevertheless, Wijepala stated that any formal plea for renewed protection would be reviewed according to established protocol.
In a related development, the Criminal Investigation Department (CID) has commenced a formal probe into the reported threats. The Colombo Fort Magistrate’s Court was recently informed that detectives are actively investigating these claims, with judicial approval granted to question two suspects currently held at Boossa High Security Prison.
This short article highlights why central banks making losses on the business of money printing is unjustified and unethical even in common sense in modern monetary economies. Therefore, this article is in the following background.
It has now become a general practice for many central banks led by the US Federal Reserve, the world’s largest and most influential central bank, to report massive losses.
This is a puzzle why central banks make losses although they fund their operations through the monopoly printing of money or issuance of fiat money without any business rules and regulations. In contrast, banks who carry on business through the creation of money are required to make a sufficient profit if they are to stay in the business within rules stipulated by central banks as bank regulators.
In economics, any business must make at least normal profit or be breakeven to escape the closure. However, central bank can continue with any amount of loss, irrespective of economic principles.
In fact, in the event a central bank goes bankrupt due to accumulated losses, the law requires that tax payers make the central bank solvent. However, if a state enterprise makes losses or becomes bankrupt due to its public welfare-based business, it is labelled as corruption, waste and inefficiency. In some cases, even criminal charges are framed against identified officials on the ground of loss to public funds. Instead, loss-making or bankrupt central banks are treated as having managed professionally by the cream of economists with divine knowledge.
In conventional central banking topic, what students learn is the profit of central banking which is known as seigniorage that goes to the government as profit on the state monopoly of fiat money. Therefore, the government to receive negative seigniorage in modern central banking is a puzzle.
What is the business of central banks? Why should they make profit?
The primary role of central banks is to supply money called “reserves” to meet the demand of the economy. This is called money printing. Reserves so supplied consist of currency notes and coins in circulation and deposits held by banks and government in their current accounts at the central bank.
The source of the supply of reserves is the central bank’s lending and purchase of foreign currency. This is bluntly known as the monetary policy.
They lend to banks and governments without having any credit risk. Central banks in developing countries supply reserves by the purchase of surplus foreign currency from banks and governments. They all print money by book entries in the computers to respective bank and government accounts when they lend reserves or purchase foreign currency.
Therefore, central banks should make profit due to three fundamental reasons.
First, they do not pay interest on currency in circulation and bank deposits of reserves at central banks which are the key financial liabilities of central banks. Therefore, the financial cost on money printing business is zero, other than the small amount of staff and currency printing cost.
Second, they charge interest on loans granted to banks and governments and earn interest and profit on foreign assets acquired from foreign currency proceeds whereas they do not take business risks in these assets.
Third, this money printing operation is exclusively licensed to central banks and, therefore, they do not confront any competition in producing reserves to the economy.
If so, why central banks make losses?
The nature of monetary policy-based business operations stated above is largely same for almost all central banks. Therefore, their profits/losses follow same reasons.
Financial highlights of the US central bank are given in the table below to understand central bank business and reasons for profit/loss.
Accordingly, the excessive interest cost than the interest income on money printing operations is the cause for the Fed losses of US$ 114.3 bn and US$ 77.6 bn reported in the last two years.
The loss of the Bank of England was £ 75 mn in 2023 and £ 111 mn in 2024 on total assets of £ 1,075 bn and £ 945 bn, respectively.
The profit of the European Central Bank was zero in 2022 and a loss of EUR 1,266 mn in 2023 on total assets of EUR 698.9 mn and EUR 674.5 mn, respectively.
However, some central banks like Indian Central Bank make significant profit and remit dividends to the government. In India, central bank dividend is an announced source of monetary financing of budget deficit. A Governor who resisted the profit transfer had to step down.
Meanwhile, some central banks adopt creative accounting practices to hide actual profit and to prevent profit transfer to the government on the belief that such profit used by the government is inflationary.
Accordingly, following highlights are presented to understand the root causes of the losses of the Fed in special and of other central banks in general. However, creating accounting practices used by some central banks are not covered here.
Printing money or supply of reserves primarily takes place on the purchase of government securities in the open market. Meanwhile, lending to banks is generally for the supply of reserves for inter-bank payments settlements on a daily basis.
Therefore, interest income is driven primarily by market yield rates on government securities.
Reserves so supplied roll over in the economy in two forms.
Currency not earning any interest income from the central bank.
Banks depositing and investing excess reserves in the accounts with the central bank for interest income. It is this portion of reserves that causes losses due to payment of interest depending on the central bank interest rate policy or monetary policy model.
The reasons for unnecessary interest payments on such excess reserves are two-fold.
First, inter-bank overnight interest rates targeted policy of reserve supply and monetary policy. Accordingly, central banks set a lower bound of inter-bank interest rates (policy interest rate) and pay interest to banks to absorb excess reserves to the central bank so that the lower bound interest rate is maintained. At present, Fed’s lower bound policy rate is 4.25% (upper bound of 4.50%). For this purpose, in addition to interest payment on bank reserve balances, central banks further absorb reserves from banks through repurchase agreements at higher interest rates than interest rates paid on reserve deposit balances.
Second, the imbalance and time gap between money printing (supply of reserves) and its roll-back keep excess reserves continued in the economy forcing central banks to mop-up them on concerns over possible inflationary pressure. For example, the Fed’s balance sheet ballooned from around US$ 900 bn in 2007 to 4.5 trillion in 2014 consequent to the excessive supply of reserves to deal with the global financial crisis 2007/09 and then to 8.9 trillion in 2022 consequent to another round of the excessive supply of reserves to deal with financial stability concerns over the global Covid-19 pandemic. However, the Fed has no monetary policy to roll-back such excess reserves once concerns at the time of supply are resolved. For example, the Fed’s balance sheet is still at US$ 6.7 trillion at present even if the Fed has pursued a tightest monetary policy of the past two decades during the last two years. Therefore, central banks have to continue paying interest on excess reserves accumulated in the economy, given its policy interest rates corridor-based monetary policy model.
Therefore, the excessive interest cost has been the root of the loss of the Fed and many other central banks.
In addition, central banks in developing countries are involved in a huge cost on keeping foreign reserves and over-valued exchange rates as the major component of the monetary policy to please national leaders and general public. In some central banks, the major cause of loss is the cost involved in foreign reserve operations.
Is central bank independence justified for losses?
During the past 2-3 decades, a concept of central bank independence has grown in line with the US central bank. The underlying assumption is that central banks have the ability to keep economies stable if they are allowed to operate independently from government policies. Its economic rationale prevails as monetary conditions are believed to drive economic activities. Therefore, central bank independence is advocated for maintenance of the price stability, financial stability and production activities as the central bank mandates are driven by their ability to control and drive monetary conditions of the economy as appropriate.
Therefore, the central bank independence has led the public not to question any operations of central banks. Even if questioned, nobody understands technical answers provided by central banks. Their typical answer is that, if they wish to operate for profit targets, they can change interest rates, exchange rates and money printing accordingly. However, the fact is they cannot do it in modern markets.
Further, It has become customary for the public to confront high inflation or deflation, financial crises and high unemployment from time to time despite central bank stability mandates and independence. What central banks state in such instances is that the stability will reach in the medium and long-term which never starts or ends and they engage in supply of reserves on a day to day basis to banks by stating that the market liquidity is maintained at appropriate levels.
Therefore, no auditors or lawmakers or economists tend to question the rationale of central bank losses. In that context, economic principles are not applicable to monetary business of central banks and they can stay in business despite losses and accounting insolvencies.
However, banks also are engaged in a monetary business by creation of money through lending-deposit business while taking different risks. Unlike central banks, banks are required to manage risks and make profit if they are to stay in the monetary business. Therefore, banks who make losses and become insolvent have to get shut down. Therefore, this dichotomy of monetary business between central banks and banks is against economic principles.
Overall, the present policy interest rates and reserves based monetary policy model is singularly responsible for central bank losses and irregularities. The policy model used before was the monetary sector or money supply regulation in consolidation of money printing and bank business regulation on same page. Therefore, the cost and benefits of the monetary policy were shared by all participants.
However, the present monetary policy model separates money printing (or supply of reserves) from banking business regulation and, it is the central bank’s supply of reserves that is used for all stability objectives of central banks. Therefore, it is now observed that even banks tend to fail because of the monetary policy. The fine example is the waive of the turmoil across mid-sized banks led by Silicon Valley bank in the US in March/April 2023 in response to rapid interest rate hikes by the Fed even though banks followed a model of investments in government securities. As a result, the Fed had to increase the supply of reserves by about US$ 200 bn in few weeks.
Therefore, banks and markets now gamble on policy interest rates and speculations drive even policy interest rates whereas central banks have no knowledge on interest sensitive economic activities to gage the policy effectiveness.
Therefore, it is now time to question the central bank independence and loss-making monetary policy in view of economic imbalances and uncertainties and economic principles, especially due to the new US trade disputes and new dollar policy. Country governments now desperately need a monetary policy coordinated with the fiscal policy to resolve trade disputes and rebalance economies as required by the US authorities if they are to survive. The US President Donald Trump also heavily criticizes the delay of the Fed to assist its new economic policy and prepares even to amend laws to intervene in the Fed.
Overall, this type of information and analyses shows how flawed is key elements of country governance systems that are expected to improve living standards. The trust in the system without periodically assessing its hidden risks is disastrous.
(This article is released in the interest of participating in the professional dialogue to find out solutions to economic issues affecting living standards. All are personal views of the author based on his research and knowledge on the subject and, therefore, the author has no intension to personally or maliciously discredit views and characters of any individuals or institutions.)
P Samarasiri
(BA (Hons) in Economics and MA in Economics)(Former Deputy Governor, Central Bank of Sri Lanka)
(Former Deputy Governor, Assistant Governor, Secretary to the Monetary Board, Compliance Officer and Director of Bank Supervision 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.)
