Central Bank shifts focus to medium-term inflation strategy

22 February 2024 06:30 am Views - {{hitsCtrl.values.hits}} 5 Bookmark

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Addresses inherent lag in transmission that varies between 6-12 months
Approx. 2-month delay between policy decisions and effects on inflation
To facilitate better decision-making for govt., private sector, stakeholders

The Central Bank announced yesterday its intention to shift focus on inflation from the near term to medium term, citing the latter’s greater relevance for the decision-making processes.

This strategic adjustment, according to the monetary authority, aims to address the inherent lag in transmission that limits the immediate impact of policy decisions on near-term inflation outcomes.

Explaining the rationale behind this shift, a senior official of the Central Bank highlighted the approximately two-month delay between policy decisions and observable effects on inflation. By emphasising the medium term, the Central Bank seeks to provide more insightful and predictive guidance to the market and stakeholders. This, in turn, is expected to enhance policy coordination and help anchor expectations.

“This approach will not only facilitate better decision-making for the government, private sector and stakeholders but also foster more meaningful dialogue,” the official stated during a technical discussion on the recently released Monetary Policy report.

The Central Bank’s transmission period is typically six to 12 months, though it can extend up to 18 months in certain cases. In terms of forecasting, the Central Bank considers an inflation outlook that spans eight quarters ahead.

Regarding the current year’s inflation forecast, the Central Bank anticipates an uptick, attributing this to the expected one-off impact of the Value Added Tax. However, the officials foresee a stabilisation of inflation towards the latter part of this year and early next year.

Confidence was expressed in the economy’s ability to return inflation to the government’s target of 5 percent. Despite the near-term deviations from this target, due to the recent tax amendments and short-lived supply-side disruptions, the officials remain optimistic about the economy’s trajectory toward stability.

The latest Monetary Policy Report cautions that the risks to the near-term inflation projections are skewed to the upside, primarily due to the supply-side factors, while the risks to the medium-term inflation projections
are balanced.

Comments - 5

Sokrates Thursday, 22 February 2024 08:56 AM

Stop the foreign exchange manipulation and finally let the rupee flow freely for the betterment of the economy. Let qualified economists take over the helm at the central bank and fire the narrow-minded governor and his incompetent managers who already worked under Gota and are partly responsible for the economic collapse.

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Mizaru Thursday, 22 February 2024 12:06 PM

The inflation rates given by the Central Bank of Sri Lanka are bananas.

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Premalal Perera Thursday, 22 February 2024 12:23 PM

When their policies go South they move goal posts. This is our Central Bank

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Gabriel Friday, 23 February 2024 03:32 AM

Governor works with in his parameters and the treasury within theirs. They both sing hosannas to themselves while the country is sinking and people a fleeing

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Daily Mirror Humbug useless to give name Friday, 23 February 2024 02:18 PM

The above commentators think they are the most brilliant economists suggesting even floating the Ruppes as pancia of solutions , not sighting any econometric datal information and another saying " giving bananas, hosanna. Are these any creative and productive on a subject medium strategy policy on inflation. Observe these people get high patronage for such utterances and tolerance every time on most news . What a sad plight??? Publisher says Web site has the right not to publish comments . In the same term the commentators has the right and courtesy to see the reason for rejection by Publisher as a " Right for Information " to citizens. At least acknowledge. Let us see what the publisher says or would such privilege is for journalists to cover them in terms of using curtain behind sentence "learns" over their news or gossip This is like every bull shit spoken in Parliament by MPs is covered under Privilege .

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