Financial News from Sri Lanka: Central Bank Governor, Dr. Indrajit Coomaraswamy called on the public to be more aware of the proposed changes to the Monetary Law Act. He was speaking at the Central Bank Auditorium recently before an annual oration by political scientist and former advisor to the Ministry of Finance Razeen Sally.
Coomaraswamy said, “In modern central banking there is a strong conviction that there should be a separation, there should be coordination between fiscal and monetary policy, but you certainly don’t want fiscal dominance on monetary policy.”
“We have a very strong legacy of fiscal dominance. Such forbearance has not been helpful in terms of getting strong macro-economic outcomes in the economy. There are various monetary policy regimes that can be used. We don’t have the strength in the external sector to anchor the exchange rate. We have used monetary aggregates as an anchor for monetary policy for many years, but that relationship between monetary aggregates and inflation got weaker over time.”
Inflation targeting has been in place for the past five years, the governor said. He said, “This isn’t a new thing, the Central Bank is moving towards a flexible targeting system. We’ve moved fairly much. We are now targeting the system for flexible inflation. If the system is integrated into the law as we want it to be on the next day, nothing will alter. “He said,” Sri Lanka’s largest policy-making complaint is the lack of consistency. That’s what everybody says.
If the flexible targeting system is incorporated into law, you will automatically have higher consistency and predictability. “He added,” We had permanent secretaries when the Monetary Law Act was written. The Treasury Secretary was not a political nominee. All secretaries are political nominees today. It is highly questionable if you want a political appointee to the Central Bank’s governance framework. “He said,” In the future, with the new Monetary Law Act, the members of the governing board and the monetary policy committee will be suggested by the Treasury Secretary with the consent of the Constitutional Council.
Maintaining trust is critical with rating agencies and global capital markets. Three months after the political crisis, we were able to raise US$ 2.4 billion through dollar-denominated sovereign bond issues. One of the reasons we were able to do that was to inform bond investors that in the pipeline there was such a monetary law act. The nation had fiscal laws. Similarly, just two months after the April bombings, we were able to increase US$ 2 billion.
A significant aspect of the investors ‘ story was that the legislature was in the making. “Dr. Coomaraswamy said the issuances of the March and June government were 3.5 times overwritten and 3 times overwritten. “The (investor) trust was demonstrated because we moved to a clear framework for an institutionalized macroeconomic policy. This Monetary Law Act is a groundbreaking piece of legislation. “The Governor added that the future governor will be accountable to the parliament on the inflation rate and the minutes of the financial board meetings will be published with a time lag in the near future.