Source: Bloomberg                               Date: 10 March, 2011

Mongolia is concerned about the destabilizing effect of “hot money” inflows on the economy as it begins to develop large coal and copper mines, said Mr. B. Javkhlan, the First Deputy Governor of the Central Bank. The country spent MNT180 billion, or USD140 million last year to stabilize the exchange rate and will continue with the policy as expected commodity price gains and the start of operations at new mines pressure the currency, Mr. Javkhlan told the Mongolia Economic Forum last week. About 40 percent of money inflows into Mongolia are short-term, he said.

“One issue I’d like you all to be concerned about is hot money,” Mr. Javkhlan said. “The real exchange rate has quite a gap with the nominal. The more this grows, the more speculative money will come in.” The MNT has gained 15.4 percent against the dollar since January 1 last year and 19.2 percent versus the euro as the country’s second-largest export, copper, hit a record USD10,190 a metric ton on February 15, and coal prices advanced on supply disruptions from Australia. Mongolian banks hold about MNT1.5 trillion of “extra” liquidity, Deputy Minister of Finance Ch. Gankhuyag had earlier told the forum.

“Come 2014, and we won’t any longer need to be scared of this money flows, because it will be real money going into the economy when most of the mining projects are up and running,” Mr.Javkhlan said. “The main goal now is stability of the fiscal system.”