Rising Foreign Reserves Fail to Ease Mongolia’s Inflation Pressure

ULAANBAATAR — Mongolia’s official foreign exchange reserves reached $8.9 billion at the end of September 2026, but accelerating inflation continues to erode household purchasing power. Mining exports are supporting the country’s external balance, while rising food and fuel prices and fiscal expansion pose challenges to macroeconomic stability.

Higher reserves strengthen the external position

According to the Bank of Mongolia, official foreign exchange reserves stood at $8.897 billion at the end of September. Higher prices for mining products such as copper and coal, along with increased export revenues, were among the main factors supporting foreign currency supply and the country’s capacity to meet external payments.

An assessment released by the International Monetary Fund (IMF) in early October 2026 noted that Mongolia’s economy grew 7.7 percent year on year in the first half of the year. Mining output and export activity were the main drivers of that growth.

However, rising foreign exchange reserves do not automatically lead to lower domestic inflation. Reserves are important for external payments, import financing and the economy’s ability to withstand shocks, but inflation is also shaped by monetary policy, government spending and supply conditions.

Inflation rises well above target

National inflation reached 12.9 percent year on year in September, significantly exceeding the Bank of Mongolia’s 6 percent target and its tolerance band of plus or minus 2 percentage points. The IMF linked the increase to pressure from food price shocks and disruptions to fuel supplies.

If inflation remains high for an extended period, real household incomes may decline and the purchasing power of wage and pension increases may weaken. Rising business costs could also put pressure on the profitability of small and medium-sized enterprises and affect investment decisions.

The IMF projects that Mongolia’s economy will grow by around 6.2 percent in 2026, but food and fuel price pressures, together with fiscal expansion, could keep inflation elevated.

Mining revenues and the balance of fiscal policy

Higher mining revenues have a positive impact on government income and foreign exchange reserves. But because commodity prices and export volumes fluctuate, relying too heavily on temporarily high revenues to finance permanent wages, pensions and other recurring expenditures carries risks.

The IMF has advised Mongolia to use the favorable mining revenue cycle to rebuild fiscal buffers, strengthen fiscal discipline and avoid policies that could add to inflationary pressure. If export revenues fall while recurring expenditure remains high, the budget deficit and financing needs could increase.

Mongolia’s near-term economic outlook will depend largely on policies that preserve the benefits of mining exports while protecting price stability. Rising foreign exchange reserves provide an important safeguard, but containing inflation will require coordinated fiscal and monetary policies, along with measures to reduce supply disruptions.