New Central Bank Bill Gets Green Light From SC: Why Is Independence Of CB Important? Read Our Explainer

Speaker Mahinda Yapa Abeywardena said the Supreme Court has determined that none of the provisions of the 'Central Bank of Sri Lanka Bill' are inconsistent with the constitution, and it can be passed with a simple majority in Parliament subject to the amendments which have been mentioned in the SC determination.

The Central Bank Independence is a key pillar in Sri Lanka's economic reform package carried out with the support of the International Monetary Fund (IMF).

The new Central Bank bill is likely to be passed in Parliament later this month, President Ranil Wickremesinghe recently said.

Establishing an independent Central Bank is considered essential for the country's economic growth for the following reasons;

A) Inflation control: Central banks are responsible for maintaining price stability, and an independent central bank is better positioned to control inflation than one that is subject to political pressure. An independent central bank can focus on achieving long-term price stability, without having to worry about the short-term political consequences of its decisions.

B) Monetary policy: An independent central bank can make monetary policy decisions based solely on economic considerations, without political interference. This allows it to pursue policies that are in the best interests of the economy, rather than being swayed by political considerations.

C) Credibility: An independent central bank is seen as more credible by the public and financial markets. This credibility can help to anchor expectations for inflation and provide a stable environment for investment and economic growth.

D) Fiscal discipline: An independent central bank can help to promote fiscal discipline by refusing to finance government deficits through the creation of new money. This helps to prevent inflationary pressures that can arise from excessive government spending.

Overall, an independent central bank can provide a stable and predictable environment for economic growth by promoting price stability, making monetary policy decisions based on economic considerations, and providing credibility and fiscal discipline.