FINANCIAL CHRONICLE — The Advocata Institute, a think tank based in Colombo, has introduced ‘Samvaada’, an open analytical platform designed to encourage organized discussions on policy matters. The platform’s first topic is a critique of Sri Lanka’s existing inflation targeting strategy.
According to Advocata, the initiative aims to enhance the quality of public policy discourse in Sri Lanka, emphasizing that the decline of traditional print media and the rise of rapid social media interactions have diminished comprehensive debates, reducing important economic discussions to mere soundbites.
The first feature essay on the platform, titled “Rethinking Inflation Policy in Sri Lanka: When Prices Rise Faster Than Incomes” by Ravi Ratnasabapathy, challenges the common belief that maintaining an inflation target of 5 to 7 percent is harmless or beneficial for economic growth.
In his analysis, Ratnasabapathy posits that an increase in the money supply creates a “money illusion,” suggesting a sense of prosperity without a corresponding rise in the actual availability of goods and services. This results in an increased amount of currency chasing the same quantity of output.
He questions the notion of monetary neutrality, highlighting that income levels do not uniformly adjust in response to rising prices. While high-earning professionals can adapt their salaries promptly, those on fixed incomes, such as pensioners and informal sector employees, experience significant real income declines.
The essay connects the issue of excessive domestic liquidity with Sri Lanka’s persistent balance of payments challenges, asserting that the creation of additional money fuels demand for imported products and essential materials like fuel, clinker, steel, and wheat. It argues that simply depreciating the currency cannot rectify balance of payments deficits if the fundamental issue of domestic money expansion is not addressed.
To demonstrate the ongoing trend of currency depreciation, the essay includes historical exchange rate data alongside recent figures from the Central Bank of Sri Lanka’s Market Operations Report for June 2026:
Historical & Recent USD/LKR Exchange Rate Movement
Period / Date: 1980–1990
Start Exchange Rate (USD/LKR): 15.55
End Exchange Rate (USD/LKR): 40.02
Timeframe: 10 Years
Annual Average Rate of Depreciation: 9.91%
Period / Date: 1990–2000
Start Exchange Rate (USD/LKR): 40.02
End Exchange Rate (USD/LKR): 72.30
Timeframe: 10 Years
Annual Average Rate of Depreciation: 6.09%
Period / Date: 2000–2010
Start Exchange Rate (USD/LKR): 72.30
End Exchange Rate (USD/LKR): 114.40
Timeframe: 10 Years
Annual Average Rate of Depreciation: 4.70%
Period / Date: 2010–2020
Start Exchange Rate (USD/LKR): 114.40
End Exchange Rate (USD/LKR): 181.16
Timeframe: 10 Years
Annual Average Rate of Depreciation: 4.70%
Period / Date: 2020–1 Jul 2025
Start Exchange Rate (USD/LKR): 181.16
End Exchange Rate (USD/LKR): 299.90
Timeframe: 5.5 Years
Annual Average Rate of Depreciation: 9.60%
Period / Date: Dec 2024–Dec 2025
Start Exchange Rate (USD/LKR): 292.58
End Exchange Rate (USD/LKR): 309.99
Timeframe: 1 Year
Annual Average Rate of Depreciation: 5.60%
Period / Date: Dec 2025–Jun 2026
Start Exchange Rate (USD/LKR): 309.99
End Exchange Rate (USD/LKR): 336.66
Timeframe: 6 Months
Annual Average Rate of Depreciation: 7.80%
(Note: In 1950, the exchange rate was 4.76 rupees per US dollar.)
Advocata invites economists, academics, business leaders, and policy professionals to engage with the essay and contribute alternative viewpoints on the platform to enrich the national discourse. (Colombo/August07/2026)
