CBSL Deputy Governor criticises Mahendran's directives

The Central Bank's former Governor, Arjuna Mahendran, walked into the Bank’s Market Operations Committee meeting on February 27, 2015 and told those present that the standard deposit rate of 5 percent would be removed and an auction held to issue 30-year Treasury Bonds, a senior official claimed.

The former Governor claimed that the move would bring in foreign investors to the country, the Bank's Deputy Governor Nandalal Weerasinghe said on Friday.

He made the statement while giving evidence before the Commission of Inquiry (COI) probing the issue of treasury bonds from February 1, 2015 to March 31 last year.

The Commission comprises Supreme Court Justices K.T. Chitrasiri, Prasanna Jayawardena and retired Deputy Auditor General V. Kandasamy.

In evidence led by Senior State Counsel Shaheeda Barrie, Dr Weerasinghe said the decision to scrap the 5 percent deposit rate was highly sensitive and if that information leaked to one of the bidders, it would have given the bidder a definite advantage over others.

Dr Weerasinghe recounted that at the Monetary Board meeting held on February 23, Mr Mahendran had instructed that the deposit rate should remain unchanged. However, at the Market Operations Meeting held on February 27, he said the deposit rate would be removed. The deputy governor said he had questioned Mr Mahendran on the decision as the Monetary Board had earlier decided that the deposit rate should not be changed. The Governor, however, had insisted that this was necessary as a 30-year bond auction was taking place and it would bring in foreign investors, he added.

The Deputy Governor also stated that the former Governor did away with the direct placement method for bond auctions without obtaining Monetary Board approval. There was no discussion with regard to stopping the method and there was no reason for it to be suddenly stopped, the Deputy Governor added.

Dr Weerasinghe said a meeting was held on the morning of February 26. It was attended by the CB Governor, Deputy Governors, the Treasury Secretary, Ministers Ravi Karunanayake, Kabir Hashim and Malik Samarawickrama. Road Development Authority officials also attended.

Addressing the meeting, which was chaired by Finance Minister Karunanayake, Minister Hashim had stated the Government urgently needed funds to pay for various projects and that these projects were currently on hold due to outstanding payments. This in turn, had resulted in job losses, he had noted, appealing for the release of funds for the projects. However, Minister Karunanayake had responded that the projects were embroiled in corruption and there was no possibility of issuing funds for them till investigations were concluded. Dr Weerasinghe said the Minister instructed him to examine these projects and to submit a report soon. Dr Weerasinghe stressed that while Minister Hashim had requested Rs15 billion for the projects, no agreement was reached at the February 26 meeting to release any funds.