Despite domestic accusations of corruption and calls for reform Sri Lanka’s central bank still commands the basis of a largely successful infrastructure
The Central Bank of Sri Lanka is a relatively young establishment. It came into existence in 1950, two years after the country gained independence. The first bank governor appointed was John Exter, serving under the then Minister of Finance, J.R. Jayawardena. The institution was initially called the Central Bank of Ceylon. Until the creation of the bank the Currency Board had managed the country’s monetary policy. The Sri Lanka Central Bank belongs to the Asian Clearing Union.
While the bank is responsible for conducting monetary policy in the country, it also has significant powers of supervision over the country’s financial system. In 2007, the Sunday Times of Sri Lanka called the bank’s credibility into question due to allegations of institutional decay and political interference.
One of the bank’s main targets is to ensure that inflation remains at acceptable levels. During 2011, the bank has had significant success with this objective. At the beginning of 2011 the inflation rate, as measured by the Colombo Consumers’ Price Index and published by the Department of Census and Statistics stood at 6.2 percent. This decreased to 4.9 percent in December 2011. The average for the year was 6.7 percent. The bank therefore achieved its goal of keeping inflation below 10 percent.
The core inflation level, which the bank calculates by excluding energy, fresh food, coconuts, rice and transport from the Consumer Price Index basket, also dropped to 4.7 percent in December 2011, bringing the average figure for 2011 to 6.9 percent.
In a speech entitled “Road Map – Monetary and Financial Sector Policies for 2012 and beyond” the Governor of the Sri Lanka Reserve Bank, Ajith Nivard Cabraal, said,
“During the past year, the Central Bank of Sri Lanka took courageous decisions that were based on its core objectives. The bank took advantage of the structural changes that were emerging in the economy. It also made the necessary interventions to fashion the country’s economic journey on a ‘fast track’ basis.”
Economic growth, exchange rate, employment rate
Sri Lanka has achieved an economic growth rate of 8.3 percent during 2011, at a time that the major world economies in America and Europe were struggling along at a snail’s pace. In fact, 2010 and 2011 were the first periods in the history of the country during which it managed to achieve an economic growth rate of more than eight percent for two years in a row.
At the same time, the Sri Lanka Central Bank has managed to keep the exchange rate of the country’s currency, the Rupee, stable.
Unemployment in the country is at a very low 4.3 percent when compared to even a major economy like the US, where unemployment is currently hovering around 10 per cent.
The Central Bank of Sri Lanka does not operate in a vacuum. It has to take into account decisions taken by other central banks, when it decides on the correct course of action. Its decisions will in turn affect other countries, particularly those belonging to the Asian Clearing Union.