Governor of Central Bank N.Zoljargal: Economic difficulty and crisis are not the same

May 10 • Economy, Featured, Interview, News • 2643 Views • No Comments on Governor of Central Bank N.Zoljargal: Economic difficulty and crisis are not the same

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This is a translation by BM of an interview with the Governor of the Central Bank of Mongolia N.Zoljargal appeared on on 10th of May.

Official USD currency rate reached MNT1800 and currency exchange entities started selling MNT1800 per USD. Despite the statement by Bank of Mongolia to tame the USD local currency is still depreciating. What is your comment on this issue?

Spring is the main season where foreign currencies are used in trades and construction, thus increases the demand for USD which causes the appreciation of USD. After the second quarter of the year foreign currency inflow caused by sales of cashmere causes appreciation of MNT. As for this year, revenues from coal export have been low. Although the volume of export increased, the price is still very low. Also, there are difficulties we that some companies cannot receive the revenues despite their export (Erdenes TT). In addition we are taking measures to increase sale of gold. During the first quarter of 2014, the currency rate was MNT1770-1780 per dollar and had 1-2% fluctuation. Therefore, we see the current appreciation as a seasonal change in currency. Because the trade balance has been balanced this year for the first time in a decade. It was minus USD300-400 million in the past years. Thus, according to our forecast, there will be no further appreciation of USD except of course, for the seasonal and temporary fluctuations. Bank of Mongolia cannot satisfy the foreign currency demand, therefore, the resolution that is under discussion on how to overcome the economic difficulties and attract foreign investors and foreign currency flow is an important factor to ease the situation.

Is it really possible that MNT will not depreciate further?

Compared to 2009, there aren’t any symptoms of economic crisis. Economic difficulties are not economic crisis, they are not the same thing. As I mentioned earlier, the SGK resolution on deciding what to cut and what to decrease is very important.

Can Bank of Mongolia guarantee that it will not increase the policy rate?

We are currently waiting for the SGK’s decision on the resolution, then we will convene the meeting on policy rate. Policy rate change effects are visible in the economy after 6 months, you can also say that it the period where there will be some economic impacts due to change in policy rate. The SGK resolution touches on issues such as tax and non-tax related supports and relief. All of these would have positive impact on currency level. Unfortunately, the events in politics that has been happening for the past 3 months is contracting our possibilities. Political stability is a major factor to ensure market stability. In brief, I think that currency level will be stable this year.

Number of MPs insist on holding your responsible for price instability and currency volatility? 

I cannot comment on the responsibility issues on my self. However, I think Economic Standing Committee, SGK and the Cabinet should talk openly about the currency hardships we are facing. From our side, we are delivering necessary informations to the public in a timely manner. There are many actions to be taken on increasing foreign currency inflows. Bank of Mongolia is sitting between two choices whether to increase tax supply which is harmful for the economy, and contraction policy which will slow our economy down. For the foreign currency, we can only perform intervention. As scheduled we will announce the intervention for this spring.

Number of economists are concerned that if we do not increase the foreign currency inflow, our GDP growth will decline?

Some part of our local currency is converted from foreign currencies came from outside. However, when the inflow scarce, it is hard to balance and manage it. Bank of Mongolia supplied currencies to balance it last year. Specifically, if we are lacking 6 trillion, 3 trillion would be far than enough. As for this year, we cut the whole MNT3 trillion. Therefore, we should concentrate more on foreign investments and increasing revenues of exports.

Number of people perceive the import replacing 888 project as merely a PR campaign. Do you think that commercial banks will lend to this projects?

Export supporting policy demands for weak local currency. There are no two policies on strong local currency, therefore from the policy prospective it is understood by both sides. We perceive MNT1800 per USD as a correct rate that balanced our trade. It is a rate that promotes export and weighs import. I hope that these projects would get funding. Commercial banks have received the proposals and looking at the viability of the projects in detail. The eligible projects would get funded.

There are talks about foreign banks entering the market, will this help the economy?

We haven’t received any formal proposals from foreign banks. If we receive proposals, we must analyse the impacts and make a decision.

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