Efforts made to hold inflation at 8 percent

Decline in foreign investment blamed for lower currency rate

B.Ooluun/The Mongol Messenger

Parliament began debating a draft Bill to approve the ‘Basic guidelines of the state monetary policy for 2014’. The main objectives of the monetary policy in 2014 were directed at keeping inflation at a sustainable
level, strengthen stability of the macroeconomic and financial sectors, and improve economic immunity.

As of August 2013, inflation at the state level was 9.4 percent, and in Ulaanbaatar 8.4 percent. The Mongolbank is pursuing a goal to hold inflation at 8 percent in 2014 and no less than 7 percent in 2015-2016.
The Mongolbank was instructed to keep inflation at less than 8 percent by the end of 2013 when in 2012, it
reached 15.6 percent. Basic inflation decreased by 5.9 percent compared to last three years’ avarage due to
implementation of sub-programs on price stabilization of main food products, oil and fuel wholesale, cutoff of wholesale prices on import goods, support for the construction sector, stabilization of housing prices,
and energy cost and tariffs. Inflation measured by the consumer price index fell by 3 percent nationwide and by 4.2 percent in Ulaanbaatar compared to the last three years.

In order to reach next year’s target, the Mongolbank considers it appropriate continuing price stabilization program on goods and products. Some MPs were critical that the currency rate inflated by supplying
a great amount of money to the market under the Mongolbank price stabilization program. Tgs 3 trillion by
the program has not yet been repaid. 

The monetary policy envisaged holding a flexible policy adaptable to the key conditions of the macro
economy in relation to Mongolian and foreign currencies, maintain banking payment capacity, and be
able to overcome adverse risks of the system’s character.

From the beginning of 2013, the Monetary Policy Council of the Mongolbank changed the interest of  money policy 3 times, bringing it to 10.5 percent reducing a total of 2.75 percent which facilitated stabilizing
money and loan growth, ensuring normal operation of the financial sector, and positively influencing economic
activation. G.Zoljargal, Governor of Bank of Mongolia emphasized that uncertainty in the foreign trade and
investment environment continued from 2012 and became the major reason for limitation of support to
economy. Foreign trade conditions in the last 19 months worsened by 23 percent, direct foreign investment
decreased by 5 percent in 2012, and by 43 percent in 2013. Financial sources shrank and excluding Chinggis bond money, assets from abroad decreased by US $1.2 billion.

The deterioration of foreign trade, the decline in direct foreign investment and waning of foreign currency flow directly influenced to slacken the rate of Mongolia’s national currency. The MNT rate to USD has dropped by 17.1 percent since the beginning of 2013. 

Mongolbank intends to support investment of national industries capable to compete in the world
market and replace imports, carry on the policy directed at creating good quality workplaces, and encouraging national accumulation. The 2014 monetary policy envisaged to ensure reliable and uninterrupted operation of Mongolia’s payment accounting system, intensify the payment and account system reforms for 2014- 2016, guarantee openness in resolving monetary policy decisions, and improve the government’s monetary policy.

Source:Mongol Messenger
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