Sri Lanka’s Advocata launches ‘Samvaada’, challenges inflation targets

Colombo-based think tank Advocata Institute has launched ‘Samvaada’, an open analytical platform aimed at fostering structured policy debate, initiating its first discussion by challenging Sri Lanka’s current inflation targeting policy.

Advocata said the platform was established to restore depth to public policy discussions in the island nation, noting that the decline of long-form print media and the rise of fast-paced social algorithms have squeezed out deliberate, high-level debate, reducing key economic choices to soundbites.

The inaugural feature essay published on the platform, titled “Rethinking Inflation Policy in Sri Lanka: When Prices Rise Faster Than Incomes“ by Ravi Ratnasabapathy, questions the prevailing policy belief that an inflation target of 5 to 7 percent is benign or promotes economic growth.

Ratnasabapathy argues that increasing the money supply creates a “money illusion” of prosperity without increasing the real supply of goods and services, leading to more rupees chasing the same volume of output.

He challenges the concept of monetary neutrality, pointing out that incomes do not adjust equally to rising prices. While high-demand professionals can adjust their earnings quickly, pensioners, retirees on fixed incomes, and informal sector workers suffer severe real income losses.

The essay links excessive domestic liquidity to Sri Lanka’s recurring balance of payments issues, stating that extra money creation drives demand for imported goods and raw inputs like fuel, clinker, steel, and wheat. Currency depreciation alone cannot resolve balance of payments deficits when underlying domestic money expansion remains unaddressed.

[ View the full article here.]