Presidential Commission inquiring into Treasury Bond issue :
The Director of the Domestic Operations Department said the former Central Bank Governor Arjun Mahendran instructed him to immediately stop injecting of liquidity into the market by way of issuing reverse repurchase agreements, to which the Market Operations Committee(MOC) did not agree.
A reverse repurchase agreement is the purchase of securities with the agreement to sell them at a higher price at a specific future date.
“On the March 3,2016, Governor Mahendran called me and told me to immediately stop conducting the reverse repo auctions.” DOD Director P.W.D.N.R. Rodrigo said.
“Reasoning out the decision, he said we have increased the SRR to 7.5% with effect from December 13,2015 and when the SRR is increased with
100 basis points, about Rs.50 billion money comes into the Central Bank,” Rodrigo explained.
“However, the Market Operations Committee did not agree with this decision because the interest rates may rise high and requested me to speak with Governor Mahendran again,”Rodrigo said.
Asked as to how Mahendran responded to the disagreement, Rodrigo explained that, Mahendran told him that it does not matter and instructed to let the Standard Facility interest rates to raise high. “I have mentioned all the instructions given by Mahendran in the MOC minutes,”he further said.
Asked as to why the MOC disagreed with Mahendran’s decision, Rodrigo said the DOD is responsible to maintain the interest rates within the policy rate corridor.
Rodrigo was testifying before the Presidential Commission inquiring into the Treasury Bond issue.
The Commission will commence again on 24,April 2017.