Mongolia's central bank cut its policy interest rate by 100 basis points to 12.0 percent, effective Jan. 14, citing inflation that has been lower than its target for the last five months.
It is the first change in rates by the Bank of Mongolia in a year and reverses a tightening cycle that began in July 2014 and concluded with last January's rate hike to 13.00 percent. The central bank last cut its rate in June 2013.
Mongolia's inflation rate fell to a 2015-low of 2.9 percent in November from 3.4 percent in October, well below the central bank's target of 7.0 percent.
The fall in inflation is widening the central bank's room to stimulate the economy, with supply-driven inflation still low and stable while inflationary pressure from demand is also expected to be low, the central bank said.
The International Monetary Fund (IMF) considers Mongolia's economic prospects to be promising in the medium to long term due to its wealth of natural resources, though in the near term it is facing substantial challenges from low foreign direct investment, weak commodity prices and the slowdown in China.
Mongolia's Gross Domestic Product expanded by 2.5 percent in the first nine months of 2015 from the same period last year, down from a rate of 3.0 percent in the first six months and 4.4 percent in the first quarter.
The Bank of Mongolia issued the following statement:
"As its meeting on 22 December 2015, the Monetary Policy Committee (MPC) of the Bank of
Mongolia decided to cut the policy interest rate by 1.0 percentage point to 12.0 percent.
Annual inflation measured by CPI decreased to 2.9% as of November 2015, has still been
lower than the targeted level for the last 5 months, so it broadens monetary policy room
towards expansion. Supply-driven inflation has still been low and stable whilst demand-pull
inflationary pressure is expected to be at low level.
Positive and stable outlook on foreign direct investment and its recovery in the medium-term
shall support macroeconomic external balance.
This decision on cautious and gradual monetary easing shall positively affect promoting
monetary and credit growth, private sector investments and economic activities.
Extracts of the meeting minutes will be released in two weeks on the Bank of Mongolia’s