The Colombo-based Advocata Institute has launched ‘Samvaada’, an open analytical platform for policy debate, opening it with a challenge to Sri Lanka’s inflation targeting framework.

The think tank said the platform was set up to restore depth to public policy discussion, arguing that the decline of long-form print media and the pace of social media algorithms have squeezed out deliberate debate and reduced major economic choices to soundbites.

The opening argument

The inaugural essay, “Rethinking Inflation Policy in Sri Lanka: When Prices Rise Faster Than Incomes” by Ravi Ratnasabapathy, disputes the working assumption that an inflation target of 5 to 7 percent is benign or supports growth.

Ratnasabapathy argues that expanding the money supply produces a “money illusion” of prosperity without adding to the real supply of goods and services, leaving more rupees chasing the same volume of output.

He also challenges the idea of monetary neutrality — the proposition that inflation lifts prices and incomes alike. Incomes do not adjust evenly, he argues: professionals in high demand can reprice their earnings quickly, while pensioners, retirees on fixed incomes and informal sector workers absorb severe losses in real terms.

The essay links excessive domestic liquidity to Sri Lanka’s recurring balance of payments problems, contending that money creation drives demand for imported goods and inputs such as fuel, clinker, steel and wheat. On that reading, currency depreciation alone cannot close a payments deficit while domestic monetary expansion goes unaddressed.

The depreciation record

To illustrate the trend, the essay sets out the rupee’s decline against the US dollar, drawing on the Central Bank’s June 2026 Market Operations Report. The currency moved from 15.55 per dollar in 1980 to 40.02 by 1990, an average depreciation of 9.91 percent a year, then eased to about 4.7 percent annually through the 2000s and 2010s, reaching 181.16 by 2020.

The pace picked up sharply in the crisis years, averaging 9.6 percent a year to reach 299.90 by July 2025. Between December 2025 and June 2026 the rate went from 309.99 to 336.66, an annualised 7.8 percent. In 1950 the rate stood at 4.76 rupees to the dollar.

Headline inflation in Colombo rose to 7.3 percent in July, at the upper end of the band the essay questions.

Advocata has invited economists, academics, business leaders and policy practitioners to submit counter-perspectives on the platform.

Sources: EconomyNext.