Bank of Mongolia operational framework


The Bank of Mongolia (BoM) has had a monetary aggregate targeting framework since the mid-1990s with reserve money as the operating target and M2 as the intermediate target.

In practice, however, the BoM has not been strictly adhering to its monetary targets (Table below), and from an ex post perspective, and in view of the observed inflation rates one may argue that this deviation from targets does not look unreasonable, and may well reflect a remonetization process.

Targeted and Actual Values for Monetary Aggregates, 1995-2006

М0 Growth М2 Growth Inflation
Target Actual Target Actual
1995 28.7 38.3 32.9 53.1
1996 36.5 31.7 25.8 44.6
1997 23.1 19.8 32.5 20.5
1998 18.7 4.4 -1.7 6.0
1999 49.9 10.8 31.6 10.0
2000 18.6 11.2 17.6 8.1
2001 11.1 8.2 13.6 27.9 8.0
2002 21.5 21.9 35.8 42.0 1.6
2003 13.9 14.5 15.2 49.6 4.7
2004 20.0 17.0 18.0 20.4 11.0
2005 15.0 19.7 20.0 34.6 9.5
2006 15.0 15.0 25.0 39.6 6.0

Data on monetary aggregates indicated that since the mid-2000s the relationship between reserve money and broad money has become unstable.

In view of the difficulties in conducting monetary aggregate targeting due to the ongoing remonetization process and the volatility of the money multiplier, BoM intends to introduce inflation targeting in the next few years. Mongolia is on its way to meeting a number of initial conditions in support of a move to inflation targeting, but several crucial conditions remain unfulfilled. Therefore, the BoM devotes efforts to trying to meet the as many of the initial conditions as possible and pursues a phased medium and long term program to improve monetary policy implementations, to adopt a formal forecasting framework, to decide on the role of the exchange rate etc.

The following conceptions are part of the inflation targeting monetary policy mandate:

  • Announcing mid-term targeted inflation rate to the public;
  • Defining price stability as the Central bank’s main and long-term objective of monetary policy and taking every possible measures to maintain inflation rate within its targeted range;
  • Utilizing all available information (not only regarding monetary aggregates) in the process of monetary policy decision-making;
  • Ensuring transparency of the monetary policy strategy by publicizing and introducing the objectives and operational plans of the monetary policy-makers;
  • Coordinating the responsibility of the Central bank with inflation performance.