Mongol Bank’s policy rate remains unchanged

On November 18, the Board of Directors of Mongol Bank met and issued a resolution to maintain its Policy Rate. At the press conference held on November 19, the Mongol Bank reported that as of the National Statistical Committee, inflation stands at 11.3 percent in October and the inflation growth had an intensive increase in first half of this year and started showing a decline from the third quarter and relatively stabilized in the past two months.
According to amendments in the Bill on State Budget for 2011, total expenditures are likely to increase by Tgs703 billion and the loss by Tgs476 billion. It leads to higher inflation and limits the stimulation of economic growth by monetary policy. During the press conference, first deputy governor of Mongol Bank B. Javkhlan, Monetary Policy and Research Department head D. Boldbaatar and Supervision Department head B.Lkhagvasuren spoke about how much foreign debt Mongolia has and how it will influence foreign currency. By third quarter of this year, Mongolia’s foreign debt showed an increase of 22.7 percent against the beginning of this year. 55.6 percent of it is government debt, 8.1 percent is central bank’s debt, 27.8 percent is debts of non-banking private sector and 8.5 percent is debts of banking sector. An impact of a large amount of foreign currency inflow on economy and banking sector depends on capacity and immunity of the internal banking system and optimal solution of macro economy policy. In Mongolia, commercial banks lack money and tend to increase or decrease their loans by much volume along with economic cycle. Therefore,it necessitates renewing requirement in the banking sector and improving risk-bearing capacity; otherwise, a huge foreign currency flow may lose the adequate management of assets of Mongolian banks. For prevention,the Mongol Bank initiates a program of structural changes of banks in collaboration with international organizations. If governmental foreign bond’s resource is used for infrastructure investment or projects which require much capital, its impact on the banking system will be relatively low and can be effective through economic growth in the mid and long term. In case of using it for operational expenditure, such as salaries and social welfare, it will cause instability in macro economy and is likely to bring banking system into risk. The Mongol Bank adheres to the principle that Government necessitates recovering the budgetary loss with an extra reserve accumulating in the internal banking system, but not with foreign resources. By doing so, it will contribute to establish a permanent model market of government securities to finance the budget loss without inflation pressure and develop internal capital market.
To the question why prices of imported goods do not decrease while the inflow of currency increases and exchange rate of US dollar declines, they answered, “Prices of imported goods in domestic market are not only caused by the currency exchange rate but also many factors. According to price index at the borders, by October it increased by 25.8 percent against the previous year and by 20.8 percent from early of 2010. It indicates that prices of imported goods are caused by exporters. There are also many reasons, such as few providers at market, weak competition, unequal information access and too many stages to deliver products to customers


source: The Mongol Messenger newspaper
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