Sri Lankan governor ‘on leave’ during government inquiry

Arjuna Mahendran is taking a period of leave while the government investigates the practices around Treasury bond auctions at the central bank; only appointed in January
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CBSL governor Arjuna Mahendran

Arjuna Mahendran is taking a period of leave from his post as governor of the Central Bank of Sri Lanka (CBSL) as the government conducts an inquiry into Treasury bond issuance.

The news was confirmed by the central bank in a short statement today, while the monetary board had designated P Samarasiri as senior deputy governor, meaning he will lead the institution for the time being.

The inquiry concerns Treasury bond sales conducted by the central bank, after opposition parties in Sri Lanka called for an investigation into an oversubscribed auction held on February 27.

In the auction in question, the CBSL raised 10.06 billion rupees ($74 million) from the sale of 30-year bonds at a yield of 11.73%, despite initially offering just 1 billion rupees.

In an interview with local publication News First, the governor said the adjustment came when he realised the auction was extremely oversubscribed – with a total of around 20 billion rupees demanded – and could be utilised to help meet government demands for cash.

He accepted there was a "miscommunication" in the process but firmly denied the accusation the auction had been exploited by outside parties with insider information.

Local reports suggest the prime minister has expanded the inquiry beyond that particular auction to include the general practices followed at the central bank since 2012.

Mahendran only joined as governor in January after his predecessor, Ajith Nivard Cabraal, stepped down following presidential elections in the country. Cabraal is himself subject to scrutiny over deals struck with external consultants while he was in office.

Last week Mahendran criticised some of the internal procedures at the central bank, arguing they must be made more "credible" to allow for proper accountability and therefore confidence in the institution.

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