Sep 11, 2017

Sri Lanka introduces a roadmap for flexible inflation targeting

Sri Lanka will introduce a roadmap for flexible inflation targeting by October 2017 to establish inflation as the nominal anchor moving away from using the exchange rate as the de-facto anchor, on the directions of the International Monetary Fund, Central Bank (CBSL) officials said.

While continuing to develop a macro forecasting model with IMF TA, the CBSL will take next steps, including establishing price stability as the primary objective of monetary policy and publicly communicating the inflation targets.

The CBSL intends to retain a role for smoothing excessive exchange rate volatility, it will guard against a real or perceived conflict of objectives and adopt FX intervention policies consistent with a flexible exchange rate regime.

Foreign exchange market functionality can be improved, including by further liberalizing financial account transactions and deepening the FX market they said.. Through this independence from fiscal or political pressures that would conflict with an inflation objective.

It will create a sound financial system that would reduce the risk of conflict between monetary and financial system stability objectives.
process, the government will establish the legal framework, including central bank

A well developed technical infrastructure, including improved forecasting and modeling capabilities will e established while a policy decision making process governed by the guidelines on the choice of targets and how unanticipated shocks would be addressed.

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