Central Bank of Sri Lanka - Annual Report 2003

On the economic policy front, monetary policy continued to balance judiciously the two objectives of ensuring sustainable low inflation and facilitating economic recovery. This was also supported by the continuation of the independently floating exchange rate system, which has served well since its introduction in 2001. In this monetary policy stance, the Central Bank cut its policy rates cautiously to encourage investment, while absorbing the excess liquidity resulting from the accumulation of external reserves through active open market operations. The Central Bank has taken measures to improve monetary management and the policy transmission mechanism through the introduction of an active open market operation system and improvement in the soundness of the financial system.

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