Today, in the aftermath of global financial crisis, the key focus of central banks is both the successful conduct of monetary policy and macroprudential policy, in order to reinforce each other to stabilize economies. In Sri Lanka too, monetary policy formulation, operational framework and strategies adopted, have all evolved in line with the changing structure of the economy, developments in the financial markets, and the availability of data and communication strategies. I do not intend to discuss  BIS central bankers’ speeches  5  these changes in detail here, but would like to highlight that a greater coordination of monetary and fiscal policies would become even more crucial in the implementation of monetary policy and achieving macroeconomic stability, in the future than in the past. Another position that should be clear to us is that the need for harmonization between the Central Bank and the Ministry of Finance, is not a virtue that has been suggested recently, but a vital ingredient that had been provided for, since the establishment of the Central Bank, in order to ensure the sound economic management of the country. The recent evolution of our economy Armed with that background, I would now like to proceed to share with you, some instances of harmonization that has taken place in the recent past in our country. However, before I do that, I think it is necessary to first touch upon the recent evolution of our economy in order to set the stage for what would follow.
While such action can be tremendously effective under certain conditions, its limitations should be frankly recognized. Thus, through its control of money the Central Bank can assist, but by no means ensure, the achievement of the above objects. A monetary system that is stable and at the same time responsive to the needs of a growing country is a necessary, but not a sufficient condition of orderly economic development.” Sixth: Exter reports on the vital importance of harmonizing between the Government policies and the Central Bank policies. Here, Exter’s comments are unambiguous and far reaching. I quote: “There are, however, many important problems of monetary policy, especially those relating to fiscal policy, on which a central bank must necessarily work in close harmony with the government. On such problems, experience in many countries has shown that a central bank, with a degree of independence of the government proper, can make economic analyses and hold views which are more detached and objective than those of a government department. Many governments have learned to value and to use the sort of independent and objective advice on monetary and other aspects of economic policy which central banks have been able to give. On matters of vital interest to the state, however, it must be recognized that… it would be impossible for the Central Bank to adopt a policy or pursue a course of action contrary to the policy of the Government of the day.