The independent body that was set-up to carry out the monetary policy of Sri Lanka is the Central Bank Of Sri Lanka.
The mission of the Central Bank is to maintain economic and price stability and the stability of the monetary system for sustainable economic development through policies, supervision, commitment and excellence.
Following are the dual objectives of the Central Bank:
To maintain economic and price stability
To maintain the stability of the monetary system.
Economic and price stability means maintenance of a low level of inflation.
Price Stability is important in order to:
Promote economic growth
Distribute resources efficiently
Minimize risks to producers, consumers and investors
Make economic planning successfully
Creating an effective monitoring framework and strong and protective payment and settlement system for depositors and investors are the infrastructure facilities needed to materialize stability of the monetary system.
Stability of monetary system is important for the following reasons:
To make financial institutions and market function effectively
To avoid balance of payment crises
To finalize the price of assets
To protect market liquidity
The process of regulating monetary instruments to influence the interest rate and money supply to reach the objectives of economic and price stability and the stability of monetary policy is monetary policy.
The targets of regulating the monetary policy can be shown as follows:
