Asst. Governor reveals how Mahendran went against Monetary Board decision

Bond Scam Probe


By Sarath Dharmasena and Shyam Nuwan Ganewatte

Assistant Governor of the Central Bank and Secretary to its Monetary Board H. A. Karunarate, testifying before the Special Presidential Commission of inquiry probing the alleged bond scam, yesterday, said that the former Governor of the Central Bank Arjuna Mahendran had overridden the decision made by the Monetary Board to keep the interest of its daily deposits at 5% and arbitrarily increased it to 6.5 %.

Karuratne said Mahendran gave instructions to do so on February 27, 2015.

The Assistant Governor said Mahendran had instructed bank officials to issue a circular to that effect for the benefit of those interested in purchasing Treasury bonds.

The Director Internal Operations Rodrigo had complied with the order, the Commission was told. 

Karunaratne revealed that the bank officers had done as Mahendran said.

Justice Prasanna Jayawardena: When did Mahendran instruct officials to increase interest rate to 6.5%?

Karunaratne: On Feb. 27, 2015

Justice Jayawardena: Around what time

Karunaratne: Around 9.00 a.m.

Karunaratne told the Commission that before increasing the interest rates one should consider the negative effects it could have on the market. One should take into consideration the unexpected changes, inflation, currency circulation etc.

He said Arjuna Mahendran had barged into a discussion the Economic Research Committee of the bank was having on the above issue and made inquiries about it.

Karunaratne said there were around 30 such committees on various subjects in the Central Bank and it was quite unusual for a Governor to participate in their sittings.

"I have served the Central Bank of Sri Lanka since 2009 in a senior position and I have never experienced such a practice during the period," he said.

The decision taken by the Governor to increase the interest rate affected the interest rate of the bids made at the bond auction, Karunaratne told the Commission.

Senior State Counsel of the Attorney General’s Department Shahida Bari assisted the Commission in leading evidence.

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