Amendments and Revisions to the Law on the Central Bank to Be Introduced

Governor of the Bank of Mongolia S. Narantsogt has emphasized the need to introduce amendments and revisions to the Law on the Central Bank in order to ensure Mongolia’s macroeconomic stability, maintain inflation at a low and stable level, and improve coordination between fiscal and monetary policies. In this context, a draft law has already been prepared and is planned to be submitted and approved during the current spring session of the State Great Khural in cooperation with the relevant standing committees and Members of Parliament.

The proposed amendments address three key issues. First and foremost, they seek to clarify the primary objective of the Bank of Mongolia. Under the current Law on the Central Bank, the institution’s main objective is defined as “ensuring the stability of the national currency, the togrog.” According to researchers, this wording simultaneously implies responsibility for both price stability and exchange rate stability, which has led to inconsistent policy interpretation and the public misconception that the central bank is responsible for maintaining the exchange rate. Therefore, the proposed amendments aim to clearly define the primary objective of the central bank as ensuring price stability.

In addition, the draft law includes provisions to strengthen coordination between fiscal and monetary policies and to address the central bank’s capital deficiency. Specifically, it proposes that the State Great Khural approve the “Main Directions of Monetary Policy” annually by June 10.

The document on the “Main Directions of State Monetary Policy” will include the following three indicators:

• the targeted inflation level for the following three years;

• the upper limit of budget expenditures expressed as a percentage of gross domestic product (GDP);

• the volume of special government securities intended to cover the central bank’s capital shortfall.

By incorporating these three indicators into a single policy document, coordination between fiscal and monetary policy will be legally strengthened and institutionalized.