Bank of Mongolia(BOM) has increased policy rate by 0.5% to 11.5%  today. BOM Rep has said:
·      Annual base inflation is 7.9% compared to general inflation in UB of 7.4%, which suddenly declined to due to decrease in meat prices. This is indication of inflation related to excess money supply. Tightening of monetary policy by interest rate increase is to tackle this  situation.

·       In 2011Q1 money supply expanded by 67% or by 1.98trillion MNT(1.65B USD) and there is expectation that this trend will continue. Incoming foreign investment has played major role in the expansion of money supply.

·      There is a trend of increasing loans following monetary supply expansion. In 2011Q1 loans outstanding has increased 35% yoy and trend is to increase more actively, banks’ assets have increased by 50% yoy. High loan growth and high budget spending is to increase money supply which is to add to inflationary pressure. In another world, demand caused by excess money supply ahead of real economic production is to only lead to higher inflation

·      If situation continues as it is by year end, BOM’s prelim forecast  is that by year end inflation could reach between 15-20%

·      Economy is displaying signs of overheating, BOM has no choice but to tighten monetary policy at current condition of procyclical fiscal policy in order to mitigate real risk of financial and economic instability