by BLOOMBERG

COLOMBO, Sri Lanka – Sri Lanka’s central bank chief imposed more capital controls and threatened to resign if politicians fail to return stability to the nation, which is in the grip of its worst economic crisis since independence.

“I took on this responsibility with expectations that political stability will be established,” Governor Nandalal Weerasinghe (picture) said at a briefing in Colombo Wednesday. “It’s been more than a month with no progress. I do not wish to continue in this post if political stability is not achieved.”

The call follows days of political violence, with clashes between pro- and anti-government groups. The prime minister resigned Monday and his cabinet stands dissolved. A government is essential to agree a loan from the International Monetary Fund or win crucial bridge loans from countries willing to bail out the nation that is on the verge of bankruptcy.

To curb black market transactions, the monetary authority plans to issue guidance to banks on movement of the exchange rate, including a daily trading band for the rupee-dollar trade, Weerasinghe said. Operating instructions will be issued on Thursday.

“Seems like an administrative peg which will keep getting revised on a daily basis,” said Saurav Anand, economist for South Asia at Standard Chartered Plc. “So unlike the earlier regime where value was fixed at 203; this time it would be revised on a daily basis.”

The rupee fell 0.1% to 365.45 per dollar on Wednesday. Sri Lanka’s 7.55% 2030 bond fell to a record low to trade at 38.5 cents on the dollar as Weerasinghe speaks.

Weerasinghe’s briefing comes amid an ongoing political drama in the South Asian nation, whose prime minister resigned as public anger over mismanagement of the economy boiled over into political violence. The ancestral home of the ruling Rajapaksa family in the southern district of Hambantota was set on fire, and at least eight people have been killed.

“It’s a situation that will get worse before it turns around,” Weerasinghe said.

Sri Lanka’s forex reserves have fallen 4.7% in April to US$1.8 billion compared with a total debt due this year of as much as US$7 billion. The government has already halted payments on foreign debt pending talks for restructuring loan. The country will need around US$4 billion over the next eight months to pay for imports of essentials.

The central bank has raised interest rates by 850 basis points this year alone to fight inflation that’s accelerated to a record almost 30% in April.