L.Purevdorj: Inflation to be about ten percent
Parliament passed a protocol on monetary policy for 2012 on Wednesday. Our correspondent talked with Mongol Bank President L.Purevdorj about the protocol.
Q: Do you think it’s possible to hold inflation in the single digits in 2012?
A: Since Parliament has cut budget expenditures by MNT 900 billion, inflation could be reduced by two percent. But inflation will still be high even after a two percent reduction, which means it is not possible to weaken monetary policy in 2012. In other words, monetary policy will be strong to hold inflation to about ten percent.
Q: You have stated that Mongol Bank could hold inflation in the single digits, if the general budget was cut by MNT 1 trillion. What about that?
A: Certainly, Parliament has made progress by cutting the general budget, but the inflation situation has not been completely fixed. With a strong monetary policy, inflation could be held near ten percent in the future.
Also, we should pay attention to granting allowances of MNT 1 million each to 2.3 million citizens, because this issue has not been decided. If citizens take the MNT 1 million in cash, inflationary pressure will be put on the economy. Therefore, Mongol Bank suggests issuing shares of MNT 1 million that could be cashed in over a five or six year period. For instance, if 15 to 20 percent of those shares are cashed in each year, the economy will develop stably.
Q: Is there a possibility of reducing interest rates on loans in 2012?
A: There is no possibility of reducing interest rates dramatically in 2012 because monetary policy will be strong due to high inflation. Loan granting increased by 61 percent in 2011, and this growth is fostering devaluation and property price increases. That is why loan granting will be reduced in 2012.
But Mongol Bank has predicted that loan granting will still increase by 35 percent in 2012. The private sector’s development has continued, and commercial banks’ interest rates have been reduced in recent years despite a strong monetary policy.
Q: But there is some indication that commercial banks will actually increase interest rates. What is the reason for that?
A: Commercial banks are granting fewer loans and increasing interest rates a little. This is not a negative situation. Banks take measures to decrease the demand for loans.
Q: There are also indications that currency rates will fall in 2012 and people will take more loans because of that.
A: This is wrong information. Tugrug rates will not fluctuate and it will be stable in 2012. I said that inflation will be held to ten percent.
Q: How will the banking sector be in 2012?
A: The banking sector has strengthened since it lost two banks during the economic crisis. Mongol Bank has learned from the situation. Current banks have can make payments in a short period of a time and their capital sufficiency has been improved.
Q: When will the government’s guarantee of citizens’ savings expire?
A: The guarantee will end in December 2012. A draft law on saving will soon be submitted to Parliament.
Q: Do you think it’s possible to hold inflation in the single digits in 2012?
A: Since Parliament has cut budget expenditures by MNT 900 billion, inflation could be reduced by two percent. But inflation will still be high even after a two percent reduction, which means it is not possible to weaken monetary policy in 2012. In other words, monetary policy will be strong to hold inflation to about ten percent.
Q: You have stated that Mongol Bank could hold inflation in the single digits, if the general budget was cut by MNT 1 trillion. What about that?
A: Certainly, Parliament has made progress by cutting the general budget, but the inflation situation has not been completely fixed. With a strong monetary policy, inflation could be held near ten percent in the future.
Also, we should pay attention to granting allowances of MNT 1 million each to 2.3 million citizens, because this issue has not been decided. If citizens take the MNT 1 million in cash, inflationary pressure will be put on the economy. Therefore, Mongol Bank suggests issuing shares of MNT 1 million that could be cashed in over a five or six year period. For instance, if 15 to 20 percent of those shares are cashed in each year, the economy will develop stably.
Q: Is there a possibility of reducing interest rates on loans in 2012?
A: There is no possibility of reducing interest rates dramatically in 2012 because monetary policy will be strong due to high inflation. Loan granting increased by 61 percent in 2011, and this growth is fostering devaluation and property price increases. That is why loan granting will be reduced in 2012.
But Mongol Bank has predicted that loan granting will still increase by 35 percent in 2012. The private sector’s development has continued, and commercial banks’ interest rates have been reduced in recent years despite a strong monetary policy.
Q: But there is some indication that commercial banks will actually increase interest rates. What is the reason for that?
A: Commercial banks are granting fewer loans and increasing interest rates a little. This is not a negative situation. Banks take measures to decrease the demand for loans.
Q: There are also indications that currency rates will fall in 2012 and people will take more loans because of that.
A: This is wrong information. Tugrug rates will not fluctuate and it will be stable in 2012. I said that inflation will be held to ten percent.
Q: How will the banking sector be in 2012?
A: The banking sector has strengthened since it lost two banks during the economic crisis. Mongol Bank has learned from the situation. Current banks have can make payments in a short period of a time and their capital sufficiency has been improved.
Q: When will the government’s guarantee of citizens’ savings expire?
A: The guarantee will end in December 2012. A draft law on saving will soon be submitted to Parliament.
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