Monetary policy does not have many options

As Parliament gets ready to discuss the monetary policy, the Mongol Bank President has revealed several encouraging figures. Money supply has reached MNT3.6 trillion, rising 42.6% over last year; foreign currency reserve has reached USD1.6 billion, 21.1% more than in 2009; bank deposits have risen considerably. The Central Bank will continue with measures to increase the foreign currency reserve. He also said the stronger MNT will not be a worry until 2013, when exports from Oyutolgoi and Tavantolgoi will begin. The bank will take all appropriate measures to make Mongolian exports competitive. The National Development and
Innovation Committee has also considered the matter.

The Government has been urged to restrict its guarantee for bank savings. These now total MNT3.5 trillion, equaled to the 2011 united budget.

The Central Bank would like to keep inflation under 10%. It lowered its policy interest rates but commercial banks did not follow the lead and credit is still difficult to access because of the high interest they charge. Only when banks begin lending at easier rates will the economy revive. Some MPs have suggested that the Central Bank reduce its rates to 1%, as in Japan.

The present law allows banks to hold fixed deposits only for one year and this makes it difficult for them to issue long-term loans for major investments. The Development Bank will meet this need. The President of the Mongol Bank wants to see what the impact on the budget is of the payment of MNT21,000 to every citizen. If this increases the inflation rate, the Mongol Bank might not reduce policy interest rates.

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