Features
Why were interest rates raised?
by Dr C. A. Saliya
saliya.ca@gmail.com
The behaviour of market forces in macroeconomics is not instantaneous. We cannot experience the impact of these forces, immediately, like fire or wind. We would feel the behaviour of market forces such as inflation, unemployment, stock markets, interest rates and exchange rates, only with a time lag. Then it may be too late. We can now feel their impact because neither the political authority nor the officialdom made a serious attempt to manage them even though many economists and others had warned well in advance that our country was heading for bankruptcy.
There are three main reasons for raising interest rates. That is to control inflation, stabilise the exchange rate and maintain real interest rates. To understand this dynamic process that is taking place, basic interest rates (policy rates) need to be identified.
Policy rates
Policy interest rates are the interest rates at which the Central Bank deals with other banks.
According to monetary policy (as prescribed by the Treasury and the Central Bank), commercial banks must, at the end of each day, maintain sufficient funds for statutory reserves and liquidity. Therefore, some banks may have a cash surplus while other banks may face a cash deficit or shortage.
Banks with surplus money would deposit them with the Central Bank and earn interest. The interest rate applicable to those deposits made by commercial banks with the Central Bank is called the Standing Deposit Facility Rate (SDFR). That is the minimum (floor) interest rate that the Central Bank pays to other banks for their deposits.
Similarly, at the end of the day, the Central Bank will provide credit facilities to banks facing shortages of statutory reserves and liquid assets to be maintained by commercial banks. The Standing Lending Facility Rate (SLFR) is the maximum (ceiling) interest rate charged for advances taken by commercial banks from the Central Bank.
Bank Rate:
The bank rate is the interest rate charged by the Central Bank on advances extended to meet the temporary liquidity requirements of commercial banks. This means that the Central Bank will act as the lender of the last resort. These loans require a certain amount of assets to be mortgaged and this higher interest rate is considered as a penalty rate.
Let us now look at the three main objectives of raising interest rates.
Inflation control
Inflation is simply defined as continuous rise in price levels. The annualised inflation, as announced by the Central Bank of Sri Lanka, was 14.2% in January 2022 and 16% in March and the forecast for April is 25-26%, could be over 30% if the current situation prevailed.
(See figure 1)
Inflation for food items was as high as 24% in January, according to the inflation rates published by the Central Bank of Sri Lanka. This can be 35% -40% today, compared to January prices.
As a traditionally accepted remedy, the Central Bank raised policy interest rates by 7%, recently. The 7% increase is a historic one. Policy interest rates are now 13.5% and 14.5%.

(See figure 2)
As interest rates rise, people are reluctant to invest money in businesses and take risks and waste time; instead, they would conveniently choose interest-bearing bank deposits to stay relaxed. This would lead to less investment, causing a decrease in economic activities while leading to an increase in bank deposits (savings), which means a decrease in the circulation of money. Then demand would fall and price levels would stabilise if all other factors remain static.
Rising interest rates would discourage borrowings and slow down investments and reduce economic activities further.
However, there are countries with high economic growth rates, such as China and India, where inflation would not increase proportionately to the increase in economic growth.
One reason for this may be that as economic activity increases, production increases and supply increases in line with demand, while price levels are controlled by supplier competition. Therefore, traditional theories should not be accepted as universal rules.
Positive real interest rates
The real interest rate is the difference between bank interest rates and inflation. If bank interest rates are lower than inflation, people will not be motivated to save. It is profitable to stockpile as many items as possible with the rising prices of commodities.
This could lead to a vicious cycle of increased demand and a tendency for hyper-inflation.
That is, the vicious cycle of rising interest rates and inflation continuously, reinforcing each other.

(See figure 3)
When the above data is examined, it appears that the real interest rate in Sri Lanka today is negative with a large gap. This means that the interest rates that banks pay on public deposits are much lower than the rate of inflation. If so, these interest rates are likely to rise further in the future.
Stabilising exchange rate
The other factor that led to the rise in interest rates was the stabilisation of the exchange rate. People are reluctant to keep dollars if they have higher interest rates on rupee deposits relative to the appreciation of the dollar.
It is more profitable to convert dollars into rupees and invest them in rupee deposits at higher interest rates. The interest rates on dollar deposits are as low as 2% -3%, but rupee deposits with an annual interest rate of 14.5% could double the money in five years.
As interest rates rise, demand increases for the rupee and demand for the dollar falls. As a result, the rupee would appreciate against the dollar. To achieve this, other factors that contribute to the appreciation of the dollar must be controlled. That is controlling imports which intensify demand for the dollar.
Import controls should also be carefully considered on experts’ advice and implemented slowly and carefully so as not to shock the farmers and burden the people. Otherwise, it would be too late when it is realised that arbitrary decisions such as the banning of agrochemical imports are wrong.
Features
Arctic link discovered: Lankan scientists trace 8,000 km seabird migration route
By Ifham Nizam
Sri Lankan scientists have uncovered a remarkable long-distance migration route used by seabirds, linking the island’s shores with the Arctic—an achievement that is expected to reshape global understanding of bird movement and highlight Sri Lanka’s importance in the natural world.
The discovery, led by Professor Sampath S. Seneviratne of the University of Colombo, shows that Heuglin’s Gulls travel nearly 8,000 kilometres from Sri Lanka to breeding grounds in northern Russia, following a carefully chosen path that combines coastal travel with long inland journeys.
Prof. Seneviratne told The Island that the finding challenges the long-standing belief that seabirds depend mainly on ocean routes.
“For a long time, we assumed seabirds would stay close to the sea throughout their migration. What we are seeing here is very different. These birds are moving across land as well, using a route that connects Sri Lanka directly with the Arctic,” he said.

Brown headed gull- migrating from Himalayas to Mannar
The birds begin their journey from the northwestern coast of Sri Lanka, especially around Mannar—an area known for its rich birdlife and coastal habitats. From there, they cross over to India and move along the western coastline before turning inland.
Their journey then takes them through Pakistan and Afghanistan, across parts of Central Asia, and onwards to the Arctic region, where they breed during the northern summer.
What has drawn particular attention from scientists is the route chosen by the birds.
Instead of attempting to cross the world’s highest mountain ranges, or taking a much longer path over the open ocean, the gulls appear to follow a middle course that allows them to avoid harsh conditions while still maintaining a steady journey.
Map 1 &2 birds moving through the continent to reach the Artctic
“They are not simply taking the shortest distance,” Prof. Seneviratne explained. “They are choosing a route that gives them the best chance of survival. Along this path, they are able to find food, rest, and avoid extreme environments.”
The birds travel long distances each day, covering hundreds of kilometres, but they do not do it all in one stretch. Their journey depends heavily on stopovers—places where they pause to rest and rebuild energy.
“These stopovers are critical,” Prof. Seneviratne said. “If the birds cannot find suitable places to feed and recover, they will not be able to complete the journey.”
Co-researcher Dr. Gayomini Panagoda said the discovery sheds light on a route that had remained largely hidden until now.
“We always knew these birds were leaving Sri Lanka during certain times of the year, but we did not fully understand where they were going or how they got there,” she said. “Now we have a much clearer picture of their journey.”

Awareness among schoolchildren
She added that the findings show how closely connected different parts of the world are through nature.
“A bird that spends part of its life in Sri Lanka ends up in the Arctic. That tells us how linked these ecosystems really are,” she said.
The findings also underline the importance of Sri Lanka’s coastal areas, which serve as vital feeding and resting grounds for migratory birds before they begin their long journey north.
Veteran ornithologist , Professor Emeritus Sarath Kotagama said these habitats are of international importance and must be protected.
“These coastal regions, especially places like Mannar, provide the food and shelter these birds need before migration. If those areas are damaged, it will affect bird populations far beyond Sri Lanka,” he said.

Professor Seneviratne with Dr. Gayomini Panagoda
Kotagama warned that increasing pressure on coastal ecosystems—from development, pollution, and climate change—could pose serious risks.
“We are already seeing changes in many of these birds. If we are not careful, we could lose habitats that are essential not just for local wildlife, but for species that travel across continents,” he said.
The discovery also draws attention to the wider network of migration routes that connect countries across Asia and beyond. Birds do not recognise national borders, and their survival depends on conditions in many different places along their journey.
Prof. Seneviratne stressed that protecting these birds will require cooperation between countries.
“These birds travel across several regions, and each of those regions plays a role in their survival. Conservation cannot be done by one country alone,” he said.

A GPS tagged Crab Plover
He added that more work is needed to understand how other species use similar routes and how changes in climate and land use may affect migration patterns in the future.
“There is still much we do not know. This is just one piece of a much larger picture,” he said.
Environmentalists say the findings should encourage stronger action to protect wetlands and coastal ecosystems in Sri Lanka, many of which are under increasing threat.
“These areas are not just important for birds,” Dr. Panagoda said. “They support fisheries, protect coastlines, and are part of our natural heritage. Protecting them benefits both people and wildlife.”
She noted that conserving these habitats will also help ensure that future generations can continue to witness the arrival and departure of migratory birds.
For Sri Lanka, the discovery is both a moment of pride and a reminder of responsibility.
It highlights the role the island plays in supporting wildlife that travels across vast distances and connects different parts of the world.
It also shows that even a small country can have a big impact when it comes to global biodiversity.
As Prof. Seneviratne put it, “What happens in Sri Lanka does not stay in Sri Lanka. These birds carry that connection across continents.”
The discovery is expected to encourage further research into bird migration in the region, as scientists continue to explore how different species move across landscapes and adapt to changing conditions.
It also reinforces the need to protect the natural environments that make such journeys possible.
In the end, the story of these birds is not just about distance. It is about survival, connection, and the delicate balance of nature.
From the shores of Sri Lanka to the frozen Arctic, their journey is a powerful reminder that the natural world is far more connected than we often realise—and that protecting one part of it helps protect the whole.
Features
Why the promotion of drone warfare is unconscionable
For the morally-conscious, the tendency among some sections in Sri Lanka to promote the production of drones for national defence purposes could be deeply worrying. Besides, this proposition flies in the face of common sense and disregards the relentlessly increasing harsh economic realities coming in the wake of the current wars that could push many a southern country into beggary. In fact even the West is facing an economic recession.
To begin with the latter issues, it is a proved reality that the majority of Southern countries are descending further into poverty at present. The FAO has the ‘bleeding statistics’ . For instance, food insecurity in Asia is of such disquieting proportions that the region accounts for ‘ approximately half of the world’s 370.7 million undernourished people’.
It is against such a bleak economic backdrop that countries of the South are being called on to pump money into the production or importing of drones. Pointed reference needs to be made here to the South because drones are peddled as cutting-edge defence systems that are comparatively economical to acquire and relatively easy to operate. It is even voiced that with time drones could enable even smaller countries of the South to acquire ‘strategic parity’ with the major powers of the North and middle level powers.
Meanwhile, no thought is spared for the poor of the South who would sink steadily into poverty and powerlessness. Because more defence spending by southern countries only entrenches the ruling classes of those countries, and in some cases their military high commands, further in the systems of governance and repression.
This has essentially been the experience of the majority of post-colonial states. As aptly phrased by economic and political analyst Susan George in the seventies, it has always been a case of ‘The Other Half Dying’.
Accordingly, it cannot be perceived as to how more defence spending by the South on drones could help alleviate the latter’s principal problem of deepening poverty. As for the perceived escalating insecurities of the South, these problems are of such complexity that drones could never be seen as offering a quick fix for them. They need patient, multi-pronged managing, mainly at the negotiating table with the powers that matter. These are long- gestation projects that need to be compulsorily undertaken in view of the fact that the alternative could be indefinite conflict and war.
Since Sri Lanka too is mentioned as one of those countries that needs to look at the drone proposition with some seriousness, it is relevant to underscore that Sri Lanka is second in a list of countries that are described as facing acute material hardships at present in the wake of the economic instability bred by the Hormuz crisis. The source of such information is no less than the respected Kiel Institute for the World Economy. The first 10 such gravely affected countries are: Zambia, Sri Lanka, Taiwan, Pakistan, Equatorial Guinea, Kenya, Bangladesh, Vietnam, the Philippines and Thailand.
It is thought-provoking that among the above countries are not only those that have been traditionally seen as experiencing severe underdevelopment but also up-and-coming middle income countries that have been hitherto described as being on a fast track to development. The interesting mix proves that no country at present could consider itself immune to current economic shocks originating mainly in the Middle East that could plunge it dramatically into acute poverty virtually overnight.
We are left to conclude that ‘Bread’ or the economic well being of people could in no way be sacrificed for ‘Drones’ in democratic countries whose governments are obliged to be accountable to the people. Considering the phenomenal hardships that could be waiting to happen worldwide, the world could very well do without more ‘Guns’ or ‘Drones’.
However, if southern governments in particular opt for ‘Drones’ or an accumulation of ‘Guns’, the chances are that there could be overwhelming tides of social discontent in their countries, bred by economic want, that could then ignite indefinite war and repression. That is, a ‘No-Win’ situation for all concerned.
Ukraine has been spiritedly and admirably taking the fight back to the invading Russian forces over the past few years but its skillful use of sophisticated drones of its own making has in no way decreased the human costs the war has been incurring for itself. Ukraine has no choice but to continue with all the weaponry at its command to beat back the Russian invader but sooner rather than later it would need to take into account the immense suffering the war has been inflicting on its people and focus on the fact that the Russians are not backing down but using equally lethal weaponry against it.
The above are some of the dilemmas of the present wars that call for urgent resolution. Warring countries are obliged to address on a priority basis the misery and destruction their actions incur for their publics and consider deploying diplomacy, preferably under the aegis of the UN, to work out peaceful solutions to their enmities and differences. Considering the futility of their war Russia and Ukraine are obliged to think on these lines.
No less a power than the US should be considering deeply right now the advisability of continuing with its military interventions in the South in particular to achieve its self interests. The rising loss of American lives and the economic costs of war in the Middle East will be weighing heavily with the Trump administration and it shouldn’t come as a surprise if negotiations are given a serious try, going ahead. Ground realities in the region moreover indicate that the US ‘has bitten off more than it could chew’ and that Iran is remaining hostile and unyielding despite being bloodied.
For both sides to the war what should be inescapable is the harsh reality of continuing human suffering on a chilling scale. Sophisticated and increasingly destructive weaponry such as drones and missiles are being used but they have not brought either side any closer to victory. Instead human misery is being perpetrated mindlessly with a steady deadening of consciences and a flagrant abandoning of reason.
Accordingly, what perceived legitimate aims could drone warfare, for instance, help achieve? It is quite some time since sections of the world community came to realize the futility of violence and war. There is no choice but for humans to recognize and revere the principle of the sacredness of life. A return to fundamentals is imperative.
Features
Unforgettable experience …
Singer Rajiv Sebastian has the unique ability to woo an audience and he did just that on his recent trip to London, performing at the Funky ’70s Bash Dinner Dance.
This particular event of music, nostalgia, and celebration, was organised by the Ananda Balika Vidyalaya Old Girls’ Association – UK, and held at the DoubleTree by Hilton London Elstree, in Borehamwood, on 28th February.
They say the success of the evening was made possible through the dedication and hard work of President Devika Arrawwalage and the committed committee members of the Ananda Balika Vidyalaya OGA – UK.
Rajiv Sebastian was in top form, delivering an engaging performance that took the audience on a nostalgic musical journey through the iconic sounds of the’70s.

Doing the first set in full suit, with a fan joining in the action
He did three sets, appearing in three different outfits – suit, the normal shirt and trouser, and the sarong – and the crowd loved it.
Adding to the energy of the event, I’m told, was the music provided by the band Hasthi, made up of Sri Lankan musicians based in the UK.
At the end of a truly enjoyable and memorable event, the organisers had this to say about Rajiv Sebastian’s performance:
“On behalf of the entire team, I want to extend our heartfelt thanks to you for travelling all the way from Sri Lanka to perform at our first ever ABV dinner dance in the UK.
- Superb talent for captivating an audience
- Rajiv Sebastian
“Your performance was truly the highlight of the night. You have a superb talent for captivating an audience; from the moment you took the stage, your vibrant energy and incredible vocal range completely transformed the atmosphere.
“It was wonderful to see how effortlessly you engaged the crowd, keeping the dance floor packed and everyone in high spirits throughout the evening. You have graced the stage as a guest artiste on three separate occasions, delivering exceptional performances that set you apart from your peers.
“We feel incredibly privileged to have had an artiste of your calibre and charisma join us. You didn’t just provide music; you created an unforgettable experience that people are still talking about.

Surprises for his fans in Sri Lanka, as well
“Thank you for sharing your immense gift with us. Hope to see you back on a UK stage very soon!”
Yes, and it’s happening soon; Rajiv says he is off to London again, in mid-April, and will be performing at four different venues.
He also mentioned that he has some surprises for his fans in Sri Lanka, when he and his band, The Clan, present their 35th Anniversary concert … in June, this year.
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