CB Governor urges the public to grasp macro matters that shape the economy

By Sanath Nanayakkare

It is important that the general public acquires an understanding on the independent monetary policy of the Central Bank and the fiscal policy of the Government which have achieved economic stability at present, and how the current semblance of stability should be maintained going forward in order to sustain sustainability, Central Bank Governor Dr. Nandalal Weerasinghe said addressing the press at the Central bank.

Referring to Financial Statements and Operations of the Central Bank in 2023 and 2024 he said,” The main message we wish to convey to the general public of the country is that economic stability is now well encapsulated into the macroeconomic picture as a result of the policies that have been implemented by the Government and the Central Bank of Sri Lanka over the past few years. So, what we ought to tell the masses is; it is important to maintain this semblance of stability in the medium to long term for the economy to function well by taking it in the same direction. Such firmness in policy action in the future will further help to contain inflation, make the financial system more robust, increase people’s incomes and reduce poverty.”

“The second most important point is how the Central Bank will be fulfilling its duties in conducting the monetary policy towards transformational growth in line with the macroeconomic targets. There is correlation between fiscal policy and the monetary policy, and therefore, fiscal policy tends to have an impact on monetary policy. Sometimes I see that various incorrect opinions are expressed in parliament and at societal level about these two policies which reflect a gap in understanding the two elements. No other institution but the Central Bank is accountable for conducting the monetary policy of the country which includes interest rates, exchange rate, foreign currency reserves and financial sector stability.”

“The fiscal policy actually comes under the purview of the Executive, the Cabinet, the Parliament, Ministries, Departments etc. The Central Bank has to regulate the financial sector in addition to making monetary policy. The government and the Central Bank are two different institutions. The Central Bank is not literally a government institution but it is a State institution carved out with independent responsibilities, and therefore, is accountable to the parliament. That is why we have captured the details of both policies in our latest economic review report and presented it to the government and the people.”

“Our duty is to control the inflation appropriately and properly manage the banking and non-banking institutions ensuring financial stability. Sometimes it is said that the Central Bank is incurring losses and attempts are made to reflect it as an unsuccessful institution. The Central Bank wasn’t founded in the first place with the objective of making profits. When the Central Bank is conducting its monetary policy it could make a profit or incur a loss. But what actually matters is whether its monetary policy was favorable to the country or not. So, any attempt at measuring the success of the Central Bank on its profit-loss figures is misleading and incorrect. In many years the Central bank has made profits while in some years, it has incurred losses.

“In 2022, the loss of Rs. 374 billion was mainly because of steep depletion of our reserves and our short-term swaps and also huge increase in our loan stock in rupee terms with the phenomenal depreciation of the rupee to the dollar from Rs. 202 to Rs. 370.”

“In 2023, the Central Bank made a loss of about Rs. 700 billion due to domestic debt optimization amounting to Rs. 2.5 trillion. So, I urge the people to be more aware of why the Central Bank makes such losses while it is carrying out its core functions. The public also needs to understand the government’s fiscal policy, the relation between the government and the Central Bank and the responsibilities between the two entities,” the Governor said.

He urged the public to grasp the macro matters in their true essence and understand the need to stay the current course to sustain the sustainability for their lives to be less burdensome in the future.