Mongol
Bank President L.Purevdorj talks to our journalist about the monetary policy in
2011 and bank finances.

What are the main features of next
year’s monetary policy?
The success of last year’s monetary policy can be seen in that the draft budget
does not show a high deficit, and also calls for local growth. We have managed
to come out of the crisis by imposing discipline on the budget. There has been
criticism that the budget has been getting bigger in recent years but the main
thing is to keep the deficit within limits.

For
this the monetary policy and the fiscal policy have to be coordinated and this
is being done now. The budget reflects the fiscal policy. Payment of citizens’
allowance has increased the size of the budget.

How can we have the coordination?
Parliament passes both so there is a general review of apparent
contradictions. The monetary policy seeks to tackle problems like, say,
inflation that arise from the budget. If the deficit is kept low, the Mongol
Bank will be in a position to follow a more liberal monetary policy and reduce
interest rates. If Government spending is curbed, the private sector can be
given easier access to loans. Too much cash in the hands of citizens only
raises consumption and means importing more. If money from the budget is
directed to developing only infrastructure and mining, these fields will
develop but others will have difficulty. This will hinder generation of jobs
and reduction of unemployment.

What about inflation?
With the Government allocating more than MNT800 billion as allowances, to
students and every citizen, inflation will certainly be there but we hope to
limit it to a single digit.
In an unexpected move, Minister of Finance S.Bayartsogt has said the budget
will now include social welfare expenditure. This can raise budget expenses
from MNT3 trillion to about MNT4.4 trillion. The increase in deficit will have
to be met with domestic loans. That could very well mean higher inflation. If
the original draft budget is changed, the monetary policy will also have to be
changed.

The results of any change in policy interest rates are felt only after five or six
months. We are waiting for the final form of the budget before taking a
decision so that we do not have to change it soon. Our job is to take a
long-term view to ensure macro economic stability next year.

How do you view the MNT getting
stronger?
We are monitoring the movement. If there is a sudden strengthening we have to
buy foreign currency, but I don’t think this will happen. The USD rate will
stabilize around MNT1300. A bigger budget deficit will also mean printing more
bank notes and we do not want this.