Mongolia’s Challenges: Inflation, Currency Flows

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ULAN BATOR, Mongolia—Surging inflation and interest in trading the nation’s currency, the togrog, are key challenges facing the Bank of Mongolia, a top central banker said Thursday.

The economic costs of inflation—”our biggest enemy”—are well understood by the central bank, said Deputy Gov. N. Zoljargal.

In an interview after speaking on a panel here, he said a primary central-bank mission is to manage confidence in the currency. As the profile of the togrog rises with traders, he said, the policy is “don’t fight the trend,” but ensure it happens smoothly.

The togrog was among the world’s strongest currencies in 2010, gaining as the economy rebounded from the global financial crisis and amid expectations copper and coal mining will sustain the trend.

Speaking at the same conference, Mongolia President Ts. Elbegdorj said the government’s job is to ensure the mine sector creates an economic foundation, including creating employment. He said the government is considering new mining regulations, but wasn’t specific.

The International Monetary Fund mission chief in Mongolia, Steven Barnett, who spoke on the same panel as the central banker, said the flexibility of the currency system is acting like a shock absorber and is “working very, very well.”

Mr. Barnett, however, reiterated the IMF estimate that inflation is heading toward 20% without more fiscal restraint.

The central-bank deputy said intervention by the Bank of Mongolia in the currency market has been almost nonexistent this year, as the business community grew to trust the policy would be aimed to smooth the currency appreciation.

“The market takes you to the wrong direction when they don’t trust you,” he said.

Mr. Zoljargal said monthly currency-market flows, about $400 million early in 2010, surged past $1 billion by August and hit $1.5 billion by year-end.

“To manage it is an art, believe me,” he said.

He said the flows remain high but there has been less upward pressure on the currency.

He put foreign-exchange reserves at $2.3 billion.

Source: WSJ

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