Monday Oct 12, 2026
Monday Oct 12, 2026
Monday, 12 October 2026 04:22 - - {{hitsCtrl.values.hits}}
Fiscal policy and social safety nets, not monetary policy, are the right tools to protect segments of society hit hardest by inflation, Central Bank of Sri Lanka (CBSL) Assistant Governor Dr. P.K.G. Harischandra said, defending the Bank’s 5% inflation target.
Speaking at a panel discussion at the CBSL last Friday, Dr. Harischandra said the Bank could not tailor the effects of its policy decisions to particular groups. Such distributional effects, the uneven way in which price increases and interest rate changes fall on different income groups, lie outside the reach of monetary policy, he argued.
“Monetary policy, as is well known, is a blunt instrument. We cannot differentiate the impact of monetary policy across different cohorts of society. Monetary policy and distributional policy are two different things,” he said. “Perhaps fiscal policy and social safety nets are better instruments to address severe distributional discrepancies in the economy and in society.”
Dr. Harischandra said inflation expectations, the price increases households and businesses anticipate and build into wages and prices, would broadly align with the 5% target the CBSL has announced.
“We have the credibility that, in the past, inflation on average remained around that level before the crisis. And 5% should not be viewed as a very high level of inflation,” he said.
