AS He Sees It

Government holdings of Treasury bills have touched Rs. 70 billion from around Rs. 10 billion at the start of the year. Government holdings of Treasury bills have touched Rs. 70 billion from around Rs. 10 billion at the start of the year. Former Central Bank Governor A S Jayawardena told LBR that the chief monetary authority’s intervention in the money and exchange market should be limited to a stabilization force.

The governor said a Central Bank should not go against market trends. Excerpts from the interview:

LBR: Did the Central Bank under you monetized the debt in 1999 when its holdings of Treasury Bills went up?
AS: There was no conscious desire to monetize the debt. It was more of a stabilizing function. Central Bank intervention in the money market and exchange market are essentially a stabilizing function because it cannot create rates.

Even when you target inflation you cannot go against the trends in the market and try to create inflation purely by the machine of issuing money. In the same way the Central Bank should know their limitations.

We were intervening in the mark