In response to the heightened criticism leveled against the level of transparency in government securities auction practices, Sri Lanka’s Monetary Board yesterday said it would examine international best practices to be adopted in the future to make the process more transparent.
The Monetary Board, which decides on the country’s policy interest rates, also said it would recommend the relevant management team to hold pre-bid meetings with primary dealers to ensure a better flow of information and to make them aware of the market developments.
The Monetary Board further said they would recommend the state controlled private sector pension fund, Employees’ Provident Fund (EPF) to actively take part in the primary auctions amid criticism that certain primary dealers were seen dumping bonds to EPF at the secondary market, making a killing.
Since February 2015, the Central Bank’s government securities auction process has been in the spotlight with bond issues raising funds for the government raising many times of the offered amount at significantly higher rates.It had also been charged that a primary dealer, who is closely related to the incumbent Central Bank Governor, had been getting undue advantages in the bond auctions.
The Central Bank however denied any irregularities in the process and said the spike in bond yields reflected the large resource needs of the government, recent monetary policy actions and the volatile global markets.
Since February 2015, the Central Bank’s government securities auction process has been in the spotlight with bond issues raising funds for the government raising many times of the offered amount at significantly
Good governance activist and former Ceylon Chamber of Commerce Chairman Chandra Jayaratne wrote several open letters to the President and the Prime Minister demanding more transparency in the bond auction process. The Central Bank maintained that Monetary Law Act barred releasing individual information to the public relating to bond issues. Analysts have many a time pointed out that there is absolutely no price transparency in the government securities market although it was much bigger than the country’s stock market.
Nevertheless, yields of the government securities are used as proxy rates in an economy when pricing all types of assets and commodities such as lands, properties and equities..
Meanwhile, the current Central Bank Governor Arjuna Mahendran’s term of office ends in this month and, several political parties and civil society organizations and activists have already voiced their opposition over a possible extension of his tenure by the President Maithripala Sirisena.