Such transparency and accountability is likely to enhance the credibility of the Central Bank and well anchor inflation expectations, resulting in increased economic stability and supporting high economic growth and increased international competitiveness of Sri Lanka. Meanwhile continued commitment by the government towards greater fiscal discipline and stronger fiscal position remains key to the successful adoption of flexible inflation targeting. Therefore, the Central Bank will continue to support government’s efforts to reduce the debt to GDP ratio to 70 per cent by 2020 and 22  curtail budget deficits at 3.5 per cent of GDP from 2020. The government’s intention to strengthen the Fiscal Management (Responsibility) Act is very encouraging in this regard. In conclusion, I would like to take you back to the beginning of Central Banking in Sri Lanka. In 1949, John Exter, the founder of the Central Bank of Sri Lanka, in his “Report on the Establishment of a Central Bank for Ceylon” stated as follows: “The decision of the government of Ceylon to establish a central bank was a decision with far reaching implications for the people of Ceylon. One implication already stands out very clearly: in taking steps to establish an independent monetary system to be administered by a central bank the government has demonstrated unmistakably its intention to achieve genuine economic freedom as a corollary of the political freedom achieved a year and a half ago.
The British economy is facing strong pressure of demand on supply capacity, on the one hand, and low inflation, below the 2% target, on the other. Whether that combination can or will continue is, as I argued earlier, not easy to know. Since our August Inflation Report, the rise in oil prices, now at their highest level in real terms for twenty years, has moderated somewhat the outlook for the world economy. And there have been two developments at home, with conflicting implications for inflation. First, there are some signs that the economy is experiencing a softer patch after rapid growth in the first half of the year, even if the official production data are not entirely easy to square with business surveys. Second, sterling has fallen significantly, by some 4% on its effective rate against all other currencies, from its previous high level, and there is continuing rapid expansion of total money spending, broad money and credit. Looking ahead the MPC will have to balance the impact on inflation of this evidence of weaker activity against the fall in sterling and other signs of cost pressures. The implications for interest rates will depend on developments in the economy which the MPC will monitor carefully both in the official figures and through our regular visits to this and other parts of the United Kingdom. So, if you are interested in the future path of interest rates, don’t read my lips, read the economic data!