Mahendran’s decision led to unprecedented currency printing

CB Deputy Governor reveals:


By Sarath Dharmasena and Shyam Nuwan Ganewatte

Central Bank Deputy Governor Dr. Nandalal Weerasinghe, testifying before the Special Presidential Commission of inquiry investigating the alleged bond scams, revealed yesterday that the Central Bank had been compelled to print a large amount of money in 2015 and 2016 as the then Governor Arjuna Mahendran opted for long-term bond auctions.

Dr. Weerasinghe said that never in the history of the Central Bank had such a large amount of money been printed before.

Dr. Weerasinghe said that every year the Central Bank decided on the amount of money needed for economic activity in the country and the imprudent and unnecessary decision taken by the then Governor on Feb. 27, 2015 had been inimical to the national economy.

The Deputy Governor said Mahendran’s decision to go for long-term auctions and reduce the five percent short-term interest on the same day, had led to interest rates increasing and a state of confusion in the market.

Senior State Counsel Shahida Bari led the evidence.

Dr. Weerasinghe told the Commission that he recommended a hybrid system as regard bond issuance.

A combination of auctioning and direct placements would enable the Central Bank to exercise control over interest rates, he said.

The Deputy Governor said if the interest rates went up the country’s debt also would also increase and it would have to be recovered by way of taxes on the public. "If we opt for a full-time auction plan we will not have control over the interest rates and eventually the interest rates will increase," he said.

Dr. Weerasinghe said under the present Governor Dr. Indrajith Coomaraswamy a proposal had been made for the Central Bank to adopt the hybrid system. He said he had obtained a doctorate in economics and worked in the Economic Research Department of the Central Bank for a long period. "I was promoted as a Director of the Department in 2007 and became the Assistant Governor in 2011. In 2012, I was appointed the Deputy Governor and a number departments in the Central Bank came under my purview."

Cross-examined by Senior Sate Counsel Shahida Bari, Dr. Weerasinghe said that after Arjuna Mahendran had become the Governor of the Central Bank some of the departments which came under his purview had been changed.

Senior State Counsel Shahida Bari: What were the departments which came under your purview when you were an Assistant Governor?

Dr. Weerasinghe: Four departments coming under the Economic and Price Stability Unit were under my supervision. They were the Economic Research Department, the Statistics Department, the Internal Operations Department and the International Operations Department.

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