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Sri Lanka bond market probe shows good governance: Deputy Minister

COLOMBO (EconomyNext) – An official probe ordered by Sri Lanka’s Sirisena administration into insider trading allegations in bond markets shows good governance, which was absent during the last regime, Deputy Economic Policy Minister Harsha de Silva said.

De Silva said during the last several years he had raised concerns over many alleged irregularities at the Central Bank and Employees Provident Fund but no action has been taken.

Central Bank Governor Arjuna Mahendran went on leave for the duration of the probe.

De Silva said there was no statutory provision to suspend the Governor, but Mahendran had gone on leave voluntarily.

"I am not saying whether the Governor did right or wrong. Bit did anyone go on leave even for two days during the time of the last regime," De Silva asked.

"Wait for the report of the inquiry. Do you expect us to tie people to trees? May be we can do that that. But that is not ‘Yahapalanaya’ (Good Governance)"

De Silva had been a fierce critic of irregularities in the stock market and pump and dump scams.

De Silva said if the parliament is not satisfied with the report of the committee, Prime Minister Ranil Wickramasinghe promised a select committee and also said that if a license has to be cancelled or a person removed, he was willing to do so.

The firm at the centre of the controversy, Perpetual Treasuries, connected to Mahendran’s son-in-law is alleged to have sold Treasuries in the forward markets before interest rates were hiked by the Central Bank on Friday February 27 and also bid heavily at high rates at a 30-year bond auction, where interest rates soared.

The firm benefited by covering their forward sales as rates went up, and stands to make heavy capital gains if gilt interest rates fall.

Many market participants believe rates have perhaps overshot as a result of accepting 10 times the volume originally advertised and some moderation may happen, especially if there is a sovereign bond sale.

However analysts say interest higher interest rates will allow the economy to adjust to extra current spending and tax cuts outlined in a January 29 budget.

In a related development opposition legislators protested in front of Sri Lanka’s Central Bank asking Governor Mahendran to resign.

Update II