CB independence ensured in new Monetary Act
Despite the stern objections of the President, the government will be moving the new Monetary Law Act in Parliament next month with the aim of depoliticising the Central Bank (CB) and preventing direct financing of budget deficits through primary market purchases of government securities (Treasury bills), official sources confirmed
However the CB will intervene in the secondary market to influence monetary conditions whenever the need arises to do so in accordance with the best practice followed by modern central banks the world over.
The Parliamentary Committee on Public Finance is expected to approve the new Act soon enabling the Finance Minister Mangala Samaraweera to present it in Parliament.
The committee is continuing consultations with the Ministry of Finance and CB before arriving at a final conclusion, official sources said.
Another objective is to limit provisional advances that can be obtained by the government from the CB.
The new Act will provide provisions to do away with the current practice of printing money by the CB to provide credit to the government by purchasing Treasury bills at auctions or outside of it, expanding base money of the country, a senior Treasury official explained.
The Monetary Law Act which would amend the existing 70-year old law will be complemented by fiscal rules and legislation designed to prevent Sri Lanka from chronic macroeconomic instability, he added.
The CB will be relieved from printing money on instructions of the government to finance its deficit following the enactment of the new Act, he pointed out without elaborating modalities of its implementation.
In addition, the CB’s governance structure is also expected to be strengthened, along with provisions to make it an independent institution with public accountability
It will also provide provisions for a modified inflation targeting process, and remove the Treasury Secretary from the Monetary Board ensuring its independence as well as making the CB an independent institution with public accountability, he said.