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Central Bank considers aspects of Central Bank Bill

23 Apr 2022

  • Weerasinghe looking into proposals for inflation targeting in Bill 
  • New Bill formulated during Coomaraswamy’s tenure 
By Imesh Ranasinghe  New Central Bank Governor Dr. Nandalal Weerasinghe has started to look into certain aspects of the Central Bank Bill initiated by former Governor Dr. Indrajit Coomaraswamy to repeal the Monetary Law Act and ensure an independent Central Bank, The Sunday Morning Business learns. Speaking to The Sunday Morning Business, a higher official at the CBSL said that the CBSL under the new Governor has started to look into certain aspects of the Central Bank Bill, such as proposals for inflation targeting. As per the Bill, it would restrict the provisional advances to 10% of the Government revenue of the first four months of the preceding financial year, whereas Monetary Law allows up to 10% of the estimated Government revenue for the whole year. Accordingly, the Monetary Board would be solely responsible for CBSL’s monetary policy formulation and implementation of the flexible exchange rate regime, in line with the flexible inflation targeting framework. Neither the Treasury Secretary nor any member of the Government would be members of the Monetary Board. Moreover, the CBSL is explicitly prohibited from issuing credit to the Government or any organisation owned by the Government. However, this prohibition does not apply to Government-owned or publicly-owned banks and other financial institutions, as the CBSL is the lender of last resort to the financial sector and it is critical to have a Central Bank credit line available in the event of a financial crisis.  The Bill also prohibits the CBSL from buying any security owned by the Government or Government-owned organisation from the primary market. However, attempts to contact Dr. Weerasinghe were futile.  The last development of the new Act was that the drafted Bill was submitted to Parliament by then Minister of Finance Mangala Samaraweera, prior to the Presidential Election in November 2019. However, it was not taken up in Parliament under the present Government before Parliament was dissolved on 2 March 2020 for the General Elections. Later, former Governor of the Central Bank W.D. Lakshman said in October 2020, that the current Government had abandoned the Central Bank Bill. The Central Bank Bill would also break up the CBSL’s existing Monetary Board into two separate boards, namely the ‘Monetary Board’ and a new ‘Governing Board’. The Governing Board would be responsible for all CBSL activities excluding monetary policy decisions. “A Governing Board of the Central Bank will be established. It will be charged with the responsibility of overseeing the administration and management of the affairs of the Central Bank and the determination of the general policy of the Central Bank, apart from the monetary policy,” the Bill stated. “The Monetary Board shall consist of the Governor of the Central Bank, who shall be the Chairperson of the Monetary Board, the Deputy Governors of the Central Bank, and four experts in economics or finance,” the Bill added. However, the Treasury Secretary could still be a member of the Governing Board. “The Governing Board shall consist of the Secretary to the Treasury; Governor of the Central Bank, who shall be the Chairperson of the Governing Board; and three members who shall have expertise in economics, banking, finance, accounting and auditing, law, and risk management,” the Bill further noted.  


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