Source: CEIC                        Date: 09 June, 2011

In two consecutive months the Central Bank took serious measures to tighten the monetary policy and tame inflation in Mongolia. On February 23, it announced a stark increase of the reserves requirement ratio to 9%, almost doubling the previous value of 5%. About a month later, the policy rate was increased to 11.5%, the second increase in the last 12 months.

Inflation is the main concern in the Mongolian economy. Double-digit annual CPI growth has been the rule in the past year, despite government efforts to contain supply-side inflation by improving the conditions of food supply in the country in light of the international inflationary pressures on the world market. Most recent surges in inflation seem to be caused by increased domestic demand, resulting from budget expansion, distribution of allowances for citizens, and development of the mining industry. Simultaneously money supply and outstanding loans have been growing at increasing annual rates, reaching 67% and 35%, respectively, in March 2011.

The Central Bank estimated that inflation would have reached 15-20% in December 2011 if strict monetary policy measures had not been implemented right away. Indeed, the inflation outlook has noticeably improved in the past couple of months. Although outstanding loans and money supply growth rates (M2) have remained high, annual CPI decreased to 8% in March and even fell to 5.5% in April 2011.