The central bank will also be released from the mandatory buying of unsold treasury bills at primary auctions, which will reduce the amount of money it prints, the central bank chief noted. Sri Lanka will also eventually set up a separate entity to raise funds to settle its sovereign debt, removing that responsibility from the central bank, once the new legislation is passed, Weerasinghe said. (Reporting by Uditha Jayasinghe; Writing by Swati Bhat; Editing by Savio D'Souza, Christina Fincher and Hugh Lawson)
+91-22-69217812; Reuters Messaging: swati.bhat.thomsonreuters.com@reuters.net)) (Adds Weerasinghe quotes paragraphs 6-7)
By Uditha Jayasinghe
COLOMBO, March 16 (Reuters) - Sri Lanka will introduce
new central bank legislation aimed at bolstering the bank's
independence, accountability and also price stability in the
country via a new inflation target, its governor Nandalal
Weerasinghe said on Thursday.
Sri Lanka is waiting for a $2.9 billion bailout programme
from the International Monetary Fund (IMF) to be finalised on
March 20, and establishing a fully independent central bank is
one of the key criteria for receiving the aid package.
Economic mismanagement coupled with the impact of the
COVID-19 pandemic left Sri Lanka severely short of dollars for
essential imports at the start of last year, tipping the country
into its worst financial crisis since independence from Britain
in 1948.
The new legislation will prioritise controlling inflation
and introduce an inflation target, Weerasinghe said, adding that
the finance minister and the central bank would together agree
on what that target should be.
A separate governing board, consisting of six members and
the governor, will be formed in addition to the monetary policy
board, he added.
"The main point of this legislation is to empower the
central bank to make the right decisions, not popular
decisions," Weerasinghe said in a public speech on the new bill.
"With this new law a central bank governor can work
independently and make decisions that cannot be changed
according to the whims of the government in power."
The central bank will be required to issue an inflation
report every six months and will need to provide explanations to
a parliamentary committee on its performance as and when
necessary, Weerasinghe said.
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