Strong financial system can control inflation - Prof. Rankaduwa

Hiran H. Senewiratne

Sri Lanka should focus on finding long-term strategies to control inflation by increasing efficiency and productivity in all sectors, lecturer University of Prince Edward Island, Department of Economics in Canada Prof Wimal Rankaduwa said.

"We must increase efficiency in all sectors through proper resource allocation in all sectors in a systematic manner to increase productivity," Prof. Rankaduwa said in an interview with the Daily News Business.

In Sri Lanka on holiday, Rankaduwa said developed countries are focusing on controlling inflation through an inflation targeting system considering all market forces in the country. By considering the current scenario Sri Lanka does not have short cuts to control inflation without considering the long-term strategies.

Prof. Rankaduwa said Sri Lanka should have a well-developed financial system like in developed countries. "Because those countries are focusing on maintaining the inflation ratio around two per cent through the direct involvement of the Central Bank, which is always mindful of controlling money supply to achieve the target," he said.

"To cushion the high inflationary pressure Sri Lanka should focus on developing a strong financial system with the integration of all sectors including the capital market, bond market and financial and other related sectors in the country.

"Sri Lanka's service sector is the largest, which contributes 60 per cent to the country's GDP but we have to give equal prominence to other sectors including agriculture and the industrial sector as a base for the financial structure, he said.

Prof. Rankaduwa said a strong financial system in the country will help to control the high inflationary pressure in the medium to long-term perspective.

It is natural that market forces are more powerful and Government intervention to control prices and inflation will negatively impact on the entire monetary system without boosting local production and productivity, he said.

"Sri Lanka should promote a private sector based less Government controlled system and enhance credibility in the monetary system," Prof. Rankaduwa said.