Sri Lanka plays down impact of central bank chief impasse

The Sri Lankan government today said that banking, trade and financial sectors were performing "normally" despite the impasse over its central bank governor who was under fire for his alleged involvement in bond dealings favouring a firm linked to his son-in law.

"The government rejects the false propaganda carried on by certain elements that capitalise on the issue of the Central Bank Governor and speak about a market crisis and a break down in the financial sector. Activities in the Banking, Trade and Financial sectors are being conducted normally," Sri Lankan government said a statement.

Central Bank Governor Arjuna Mahendran's term ended yesterday. He had said that he was temporarily stepping down from the position until the Parliament's Committee on Public Enterprises investigated and cleared him of any wrongdoings.

Mahendran was under a cloud due to dealings of his son-in law related Central Bank primary dealer firm. They were accused of controversial bidding in Central Bank bond issues in 2015 and last May.

President Maithripala Sirisena wants to appoint a career Central banker while Prime Minister Ranil Wickremesinghe wants Mahendran reappointed.

Wickremesinghe said Mahendran should only be removed if he was found guilty in an investigation. The position remains vacant since yesterday and a new appointment would now be possible next week.

Mahendran was handpicked by Wickremesinghe to be the bank chief when Sirisena won the presidential election defeating Mahinda Rajapaksa in January last year.

Soon after his appointment, Mahendran, a Tamil and a Singaporean national, found himself mired in controversy when a primary dealer company connected to his son in law was accused of profiting from inside information in a Central Bank bond issue in February 2015.

Another scandalous deal involving the firm was reported in March this year. Since then, Mahendran was under constant public pressure with opponents demanding his removal.

Wickremesinghe was also accused of protecting him.

Sirisena in a public speech a year ago had expressed unhappiness over Mahendran's conduct.