Central Bank at 75: Stability through independence and reform
Central Bank (CB) Governor Dr. Nandalal Weerasinghe on Friday used the bank’s 75th Anniversary oration to stress that it is important to preserve the independence of the institution to ensure economic stability, regain confidence, and build long-term prosperity.
Addressing the distinguished gathering at the Atrium of the CB Head Office, Colombo, Dr. Weerasinghe warned policymakers and the general public that history has repeatedly shown the dangers of political interference in monetary policy.
Before the Central Bank Act (CBA) was enacted, past governments had relied heavily on CB borrowing directly in order to finance budget deficits, fueling money supply growth and inflationary spiral.
“Such practices undermined our mandate of price stability. Under the CBA, this is no longer possible,” he said, underscoring the law’s role in preventing monetary financing and anchoring credibility.
The Governor also highlighted that independence does not mean the CB operates in isolation. The Act ensures institutional coordination with the Ministry of Finance through the Monetary Board to ensure that in times of crisis and recovery, fiscal and monetary policies harmonise.
On accountability, Dr. Weerasinghe spoke of specific provisions in the CBA requiring the bank to report to Parliament when inflation targets are violated for two successive quarters.
Public reporting requirements, he added, increase transparency, increase credibility of policy, and allow economic stakeholders to make informed decisions.
Another milestone under the CBA is the formal designation of the CB as Sri Lanka’s Macroprudential Authority, which is the legal requirement it now has to manage systemic risks and provide for financial stability.
Yearly Financial Stability Reviews, published openly for scrutiny, set out risks, remedial steps, and strengthening exercises imposing confidence in the financial system.
Reform has extended well beyond the CBA. The Banking Act of 2024 Amendment and Banking (Special Provisions) Act of 2023 reinforced governance, increased safety nets, and empowered the CB to handle banking problems while protecting depositors and bolstering investor confidence.
Dr. Weerasinghe also addressed common criticisms and myths. Contrary to claims, the CB is not “beyond sovereignty”.
It is a state institution accountable to Parliament and ultimately to the people of Sri Lanka, with senior appointments subject to Constitutional Council oversight.
Similarly, while the bank engages with the IMF under the Extended Fund Facility, all programmes remain owned and implemented by Sri Lankan authorities.
He clarified misconceptions about the CB role in growth, stressing that its primary mandate is stability, maintaining price and financial system soundness, while creating an enabling environment for government-led development.
Misunderstandings also persist around exchange rate management. “We do not fix the rupee. Market forces determine its value; interventions are limited to smoothing volatility and building reserves,” he explained.
Looking ahead, the Governor said the CB is gradually exiting non-core “agency functions” such as concessional loan administration and debt management, allowing resources to be focused on core monetary and financial stability mandates.
In conclusion Dr. Weerasinghe warned that attempts to undermine Central Bank independence would jeopardise Sri Lanka’s economic recovery and resilience. “Independence is not a privilege it is a responsibility. Preserving it is essential for stability, sustainable growth, and shared prosperity,” he declared.
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