Government to present new Monetary Law Act in Parliament next month

However, the Central Bank will intervene in the secondary market to influence monetary conditions whenever the need arises to do so in accordance with best practices followed by modern Central Banks the world over.

The Parliamentary Committee on Public Finance (COPA) is to approve the new act soon enabling Finance Minister Mangala Samaraweera to present the new act in parliament.

The committee is continuing its consultation with the Ministry of Finance and the Central Bank 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 Central Bank.

The new act will provide provisions to do away with the current practice of printing money by the Central Bank to provide credit to the government by purchasing treasury bills at auctions or outside of it, expanding the base money of the country, a senior treasury official explained.

The Monetary Law Act devised by amending 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 Central Bank will be relieved from printing money on instructions of the government to finance its deficit following the enactment of the new he pointed out without elaborating modalities of its implementation.

In addition, the Central Bank’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 as an independent institution with public accountability, he said.