Source: Frontier Securities

In light of a recent price low for the tugrug and rising fuel prices, the government held council to organize and supervise the implementation of a new program to stabilize changes in prices at a cabinet meeting. Last week, the Mongolian tugrug valued at MNT 1,410.54 against the U.S. dollar, while gas prices reach 1,800 per liter for the most widely used regular gasoline at Petrovis gas stations.

The government advised the governor of the Bank of Mongolia to take measures that would lower the exchange rate to limit artificial growth in fuel prices. It also assigned ministers to negotiate and establish agreements with foreign countries to create a stable supply and prices for petroleum products. Deputy Minister of Minerals Resources and Energy B. Ariunsan will lead a task force to determine the source of the price fluctuations. Other ministers will review the affairs of the Fair Competition and Consumers authority and Consumer Rights Protections Society, which the government said have failed to follow through with their objectives.

The government expects the task forces to examine the situation and make conclusions about whether the price fluctuations are the result of an intentional scheme. If it is discovered that any officials have behaved inappropriately, the government has promised to take measures against those individuals. The government has also said it would cancel the permits of any importers that allow the import of fuels if it finds any importers have manipulated the market.

The tugrug has depreciated since the second half of 2011. The central bank has intervened with a plan to sell USD 280 million, or 10 percent of its total foreign exchange reserves, to bring the exchange rate to MNT 1,400. Coal and copper export prices have worsened external market conditions, making the dumping of foreign currency reserves a risky solution, said Dale Choi, Frontier Securities' chief market strategist. Choi said the government has employed foreign currency auctions, and noninterference with growth in the exchange rate thus far for stabilization. MPs have said they must review the current exchange rate policy.