Source: News.mn

An official from the IMF has said that blame towards the central bank for instituting a flexible currency rate and the hike in gas prices are misplaced. Barnett argued that a flexible currency rate is a good defense against economic crisis and not the source of the problem.

“I want to emphasize that the international market price of petroleum is driven by the U.S. Dollar, and the domestic market price in each country depends on the international market price and currency rates,” said Steve Barnett, the head of the Asia and Pacific Department of the International Monetary Fund (IMF).  “There is a common principle that the domestic market price changes along with the world market price and currency rate fluctuation, while the price of petroleum should be correlated to its cost.”

Barnett said that the IMF approved the Bank of Mongolia's implementation of a flexible rate structure, and that inflexible rates are what led to the 2008 economic crisis in Mongolia. He pointed to an overheating of the economy instigated by state spending as a reason for inflation, which effectively raised the price of imported fuels. He also commented that the central bank had acted appropriately to stabilize the tugrug's rate to better meet the external conditions.

Barrett had difficulty, however zeroing in on the source of the U.S. dollar's soaring appreciating.

“The tugrug's falling rate could be due to many factors,” he said. “For instance, the tugrug's rate could be due to foreign factors, such as the world market avoiding crisis. And the U.S. dollar rate was strengthened while the euro's rate fell in 2010. A domestic factor could be economic stability weakening due to the government's budget policy.”

Barrett recommended that the central bank refrain from forcibly strengthening the currency rate. He said the main factor in rising prices is the high budget expenditures in 2011 and 2012, and that although complaints about prices are legitimate, they should be directed towards budget policy makers, not the central bank.