Thursday, 7 May 2015 00:00
The article in the Daily FT of 5 May 2015 by a special correspondent has suggested that the impact of Governor Arjuna Mahendran’s interest rate decision regarding the notorious 30-year bond is exaggerated. The writer has done so by focusing only on the interest cost increase of the controversial bond.
From his article, it appears that he is genuinely unaware of the fact that all interest rates in an economy are linked together and that any one administrative adjustment in an interest rate by the authorities impacts all rates and not only the particular rate that was adjusted.
It is therefore best that the special correspondent familiarise himself with this fundamental concept as soon as possible. When he does so, he would probably appreciate that Governor Mahendran’s highly suspicious and inexplicable action to increase the 30-year bond rate by a staggering 300 basis points has had an impact on the entire spectrum of interest rates in the country, which in turn, has resulted in the massive loss and wastage of public funds by way of additional interest to the tune of over Rs. 45 billion already.
N. W. E. Senanayake