Mongolia holds rate, but warns it may adjust policy

     Mongolia's central bank left its main interest rate steady for the fourth time and while its policy stance continues to support the economic recovery, it warned "the necessary policy adjustments will be made as the economic recovery stabilizes and inflation exceeds the target level permanently."
     The Bank of Mongolia (Mongolbank) kept its policy rate at 6.0 percent, unchanged since November last year when it was lowered for the fourth time to cushion the economy during the negative impact from the spread of the COVID-19 pandemic.
     Mongolbank provided fresh funds for long-term financing but once again lowered the amount.
     For the fourth quarter, the central bank will provide up to 100 billion tughrik in long-term refinancing, down from 250 billion in the third quarter and 350 billion in both the first and second quarters.

     Last year Mongolbank cut is policy rate by a total of 500 basis points from March through November and also lowered banks' reserve requirements, suspended debt-service-to-income ceilings on loans and began to provide longer-term financing to banks.

     After stabilizing between 2 and 3 percent from October through March, inflation in Mongolia has picked up speed in the last five months and rose to 8.9 percent in August from 7.4 percent in July, topping the central bank's target range of 4.0 to 8.0 percent around a 6.0 percent midpoint target.

     In Mongolia's capital of Ulaanbaatar, inflation hit 9.1 percent in August.

     The rise in inflation is mainly driven by the comparison to low inflation last year and transitory factors though the economic recovery is also pushing up inflation, the central bank said, adding it expects inflation to continue to rise but then stabilize around its target in the second half of 2022.

     "Nevertheless, due to the global economic recovery and international supply chain and logistics disruptions, foreign inflation, world food and oil prices may rise more than our expectations and domestic supply-side inflation may increase, leading to the potential risk in headline inflation," the bank said.

      The improvement in the global economy has had less of an expected positive impact on Mongolia's economy, the bank said, with growth lower than expected in the previous quarter, mainly due to delays in imports, past quarantine measures and sluggish growth in construction, manufacturing and services.

      Mongolia's gross domestic product grew by 6.3 percent year-on-year in the second quarter, down from 14.8 percent in the first quarter.

Mongolia holds rate, boosts Q3 long-term financing

     Mongolia's central bank kept its policy rate steady for the third time but once again increased the amount of longer-term financing available, saying growth of economic sectors is different, the outlook is uneven and uncertainty is not decreasing due to the domestic spread of the COVID-19 virus.
    The Bank of Mongolia (Mongolbank) left its policy rate steady at 6.0 percent, unchanged since November last year when it was lowered for the fourth time in response to the pandemic.
     In 2020 BM cut its policy rate by a total of 500 basis points from March through November and also lowered banks' reserve requirements, suspended debt-service-to-income ceilings on loans and provided longer-term financing to the banking sector.

     For the third quarter, the central bank said it would increase the amount of long-term financing by 250 billion tughrik, down from 350 billion provided in the second quarter but the same as in the first quarter.

    "The current monetary policy outlook is in line with the inflation target, and further policy adjustments will be made to meet the inflation target in line with economic activity and outlook," Mongolbank said.

     Mongolia's inflation rate rose to 6.2 percent in May from 5.6 percent in April, within the bank's target range of 6.0 percent, plus/minus 2 percentage points.

      Mongolbank said some of the inflation was driven by the economic recovery while most of it was attributed to underlying effects and temporary supply factors.

      "As a result of these factors, inflation will increase in the short term, but will stabilize around the target from 2022," the bank said.

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Mongolia holds rate steady 2nd time but boosts loans

      Mongolia's central bank left its policy rate steady for the second time but provided a further 350 billion tughrik in longer-term refinancing to "continue to soften the financial conditions," by taking into account the current and future state of the economy and conditions in financial markets and banks.
     The Bank of Mongolia (Mongolbank) kept its policy rate at 6.0 percent, unchanged since November 2020 when it was lowered for the fourth time last year as the country's economy plunged into recession due to measures to contain the COVID-19 pandemic.
     Last year Mongolbank undertook a major easing of its policy, including cutting the policy rate by a total of 500 basis points, lowering banks' reserve requirements by a total of 450 points, suspending debt-service-to-income ceilings on consumer loans and providing longer-term financing to the banking sector.

      In addition to the monetary easing, Mongolia's finance ministry introduced fiscal stimulus equivalent to 7.2 percent of gross domestic product with a deficit in the budget passed by the parliament of an estimated 12.5 percent of GDP in 2020 and a 5.1 percent deficit in 2021.

     At its previous meeting in December, the bank's monetary policy committee allocated up to 250 billion tughrik in longer-term refinancing for the first quarter of this year and today the bank allocated up to 350 billion for the second quarter and expanded the list of eligible businesses to processing, service and trade sectors with more than 200 employees.

     Mongolia's economy shrank 5.3 percent in 2020 but a bounce back in the mining sector in the second half of last year as coal deliveries to China and higher gold production helped cushion the decline. 

     Although an outbreak of the pandemic in November last year delayed the recovery, Mongolbank said it expects economic activity to rise and business to return to normal if vaccinations continue successfully.

     It noted exports had risen 73 percent in the first two months of 2021.

     Inflation in Mongolia rose slightly to 2.6 percent in February from 2.4 percent in January and the central bank said it expects the impact of demand on inflation to gradually increase in coming quarters as economic activity intensifies while supply-side inflation will also rise to the impact of fuel prices.

     But it still forecasts that inflation this year will remain around its target of around 6.0 percent, plus/minus 2 percentage points. 

     After depreciating from late 2019 to August 2020, Mongolia's tughrik has been relatively stable in recent months and was trading at 2.86 to the U.S. dollar today, unchanged this year but down 4 percent since the start of 2020.

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Mongolia cuts rate 4th time in 2020 as curfew imposed

     Mongolia's central bank slashed its policy rate for the fourth time this year and cut its reserve requirement at an extraordinary meeting of its monetary policy committee, saying this was to reduce the impact on the economy and the financial sector during the COVID-19 pandemic and ease the financial difficulties faced by its citizens, businesses and financial institutions.
     The Central Bank of Mongolia (Mongolbank) cut its policy rate by another 200 basis points to 6.0 percent and has now cut it by 500 points this year following earlier cuts in March, April and September.
     The central bank also cut its reserve requirement on banks' domestic deposits by another 250 basis points to 6.0 percent and has now lowered it by 450 points this year following an earlier cut in March.
     In addition, Mongolbank said in a statement it would extend the period for restructuring consumer loans that are in arrears until July 1, 2021 and adopted a package of long-term refinancing instruments to support small and medium-sized enterprises and non-mining exports.

     The extraordinary meeting of the bank's MPC comes after the government announced a full curfew in Mongolia's capital Ulaanbaatar earlier this month after a truck drive tested positive for the virus, according to media reports.

     Mongolia's inflation rate rose to 2.4 percent in October from 1.7 percent in September and the central bank said it expects inflation to rise slightly in coming months due to the comparison with last year but it will still not exceed its target level.

     The bank's target for 2021 is to stabilize inflation around 6.0 percent, plus/minus 2 percentage points, down from the 2020 target of 8.0 percent, plus/minus 2 percentage points.

     Mongolia's economy contracted by 9.7 percent in the first half of this year but the rate of contraction slowed to 3.1 percent in the third quarter, the bank said.

     Mongolbank added it would continue to take appropriate measures to support the liquidity of households and business, and prevent credit disruptions in the banking system.

      Local press later said the central bank had downgraded its economic forecast for the economy to contract by 5.4 percent this year from an earlier forecast of a 2-4 percent contraction.

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Mongolia cuts rate 100 bps as virus seen hitting growth

     Mongolia's central bank lowered its policy rate 100 basis points to 10.0 percent, saying the increased uncertainties in connection with the spread of the coronavirus had increased the risk that the economic slowdown will be worsened due to weaker external demand, lower commodity prices and sluggish external and domestic economic activities.
     It is the first change in rates by the Bank of Mongolia (BOM) since it raised its rate at an unscheduled policy meeting in November 2018 to bolster the exchange rate of the tughrik.
     In addition to the rate cut, the first since March 2018, BOM lowered the reserve requirement on banks domestic currency liabilities by 200 basis points to 8.5 percent and changed the interest rate corridor to plus/minus 1 percentage point from the policy rate.
     In a statement from March 11, the central bank said its monetary policy committee had decided to take the comprehensive policy measures to ease the financing costs for banks, to support financial intermediation, and to stimulate economic growth in light of the current outlook.
     It added the impact of the coronavirus, or Covid-19, on the country's economy would depend on the scale of the virus' spread, the length of containment, and policy measures to prevent the spread.
     "The decision is aimed at ensuring economic and financial stability while keeping the inflation rate  around the target rate," BOM said.
     While exports from Mongolia might decline, BOM said a continued decline in imports and a sharp fall in the price of oil would reduce any depreciation pressure on the exchange rate.
     Inflation in Mongolia rose to 5.6 percent in January from 5.2 percent in December while its economy has slowed in recent quarters after growing 7.2 percent in 2018 on the back of better macroeconomic and fiscal policy, favorable commodity prices and a recovery in investment.
      In the fourth quarter of last year, economic growth slowed to an annual 5.1 percent from 6.3 percent in the third quarter.

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Mongolia maintains rate but raises FX reserve ratio

    Mongolia's central bank kept its policy rate at 11.0 percent but raised the mandatory foreign currency reserves ratio by 300 basis points to 15.0 percent to maintain the relative yield of the tughrik and reduce the fluctuations in its exchange rate.
     The Bank of Mongolia (BOM), which has kept the rate steady since raising it by 100 basis points at an unscheduled monetary policy meeting in November 2018 to bolster the tughrik, said it had discussed lowering the interest rate in light of slowing economic growth but decided not to change the rate at this point given uncertainty over the government budget and the external environment.
     The tughrik has been depreciating since April 2018 and fell 8 percent last year amid growing external deficits, a fiscal deficit, and the impact of China's decision to limit coal imports.
     This year the depreciating has slowed as inflation has stabilized and begun to decline while global interest rates have dropped.
     Today the tughrik was trading at 2737 to the U.S. dollar,  down 3.7 percent this year.
     Mongolia's inflation rate fell to 5.2 percent in November, the lowest since August 2017, from 7.6 percent in October, and below BOM's current target of 8.0 percent.
      Mongolia's economy was hit hard in 2016 when foreign investment collapsed after a fall in the prices of its major exports of coal and copper.
     The following year the International Monetary Fund (IMF) and Mongolia agreed on a 3-year, $425 million loan as part of a total financing package worth $5.5 billion that was supported by Japan, South Korea, the World Bank and the Asia Development Bank.
     This helped Mongolia's economy recover last year, with the fiscal balance turning into a surplus and international reserves rising.
     "Notwithstanding this progress, Mongolia remains vulnerable to external shocks given its high debt levels and the economy's dependence on mineral exports," IMF said in September, adding the country's economic outlook remains strong despite headwinds.
     Mongolia's economic growth rate declined to 6.3 percent in the first nine months of the year from 7.3 percent in the first half and BOM said growth is expected to slow due to the uncertain environment and slowing growth in investments.
      But budget expenditures and rising salaries from continuing large investment projects should support domestic demand next year and export prices remain at a relatively favorable level, BOM said.
     IMF forecast in September 2019 growth would remain above 6.5 percent and then moderate to around 5-6 percent in the medium term.
     Earlier this month Mongolia's parliament, known as the State Great Khural, approved the 2020 monetary policy guidelines, with BOM tasked with stabilizing consumer price inflation at 20 percent in 2020 and around 6 percent in the medium term.
     At some point in the future stable inflation will become BOM's monetary policy target, the parliament also decided.
   
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Mongolia maintains rate as inflation seen around target

     Mongolia's central bank left its policy rate steady at 11.0 percent, saying inflation is expected to remain around its target level amid heightened risks for the global economic outlook and the uncertain outlook for commodity prices.
     The Bank of Mongolia (BOM), which has kept its rate steady since raising it by 1 percentage point in November 2018 to bolster the exchange rate of the tughrik, said fiscal discipline, resiliency in the banking sector, and independence of the central bank is essential to weather the potential external risks and to sustain macroeconomic stability.
    In its statement from June 19, BOM's monetary policy committee noted the deepening of the trade dispute between the U.S. and China, which is amplifying external risks, and said a potential deterioration in its terms of trade coincided with the completion of a large mining project and the maturing of large external debt, which makes it important to sustain the external balance and build financial buffers at all levels, including households, companies, local regions and communities.
     At an unscheduled policy meeting on Nov. 27, 2018  BOM raised its rate after the tughrik came under pressure in the second half of the year and ended 8.0 percent lower during the year in light of a growing external deficits from a relatively high fiscal deficit, rising U.S. interest rates and China's decision to limit coal imports.
     But this year the tughrik has been more stable, with the tughrik today trading at 2,661 to the U.S. dollar, down just under 1 percent this year, as economic growth has improved and inflation stabilized.
     Mongolia's inflation rate rose to 7.9 percent in May from 7.0 percent in April due to higher meat prices from a disruption in domestic supply and gasoline prices.
    But BOM demand-driven core inflation was stable. BOM's inflation target is 8.0 percent.
    Rapid growth in mining, an expansion in corporate lending and increased investments and tight fiscal policy have helped boost Mongolia's economy, with growth in the first quarter up 8.6 percent, the fifth consecutive quarter of accelerating annual growth, and the strongest expansion since the third quarter of 2014.
     BOM has forecast 2019 growth of at least 6.9 percent after growth of over 6 percent in 2018.
     In January the International Monetary Fund (IMF) said Mongolia's growth remains strong and tight fiscal policy led to a surplus in 2018, adding authorities dampened excessive domestic demand that was limiting the build-up of international reserves and were ready to tighten further.

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Mongolia maintains rate after first meeting of new MPC

       Mongolia's central bank kept its policy rate at 10.0 percent, saying the outlook for inflation is stable around the target level of 8 percent and economic growth is expected to pick up further.
       The decision to maintain the rate comes after the Bank of Mongolia (BOM) slashed its key rate by 500 basis points since December 2016, including a 100 point cut in March when it also said it expected inflation to stabilize around its target level.
       Despite the rising price of global oil prices, BOM said prices of some of its export commodities had been improving and this lead to a relatively stable outlook for the terms of trade.
       The decision by BOM's monetary policy committee (MPC) comes after Mongolia's parliament approved a new central bank law that named the MPC as the official body that takes monetary policy decisions in a collective framework.
       Decisions will now be made after meetings held in two phases, and the first meeting of the new committee took place on June 11, followed by a second meeting on June 15 in which economic conditions, the economic outlook and risks, and the monetary policy stance was discussed.
       In its statement issued June 18, the central bank said the MPC set a ceiling on debt to income ratio for personal consumption credit issued by banks at 70 percent to prevent an accumulation of risk in the financial sector from a rapid acceleration of consumer credit and household debt.
       The new 7-member committee includes four members that are appointed by the parliament for six-year terms. Previously, all members of the MPC were appointed by the governor of  BOM.
       The other three members of the MPC include the central bank's governor, the first deputy governor and the deputy governor of the BOM.
       Mongolia's inflation rate rose slightly to 6.1 percent in May from 6.0 percent in April while economic activity has been accelerating in the first quarter as mining investments are continuing to expand and investor and consumer confidence has recovered.
       Surges of imports, however, in tandem with higher exports may pose a downside risk to the balance of payments, BOM said.
       Mongolia's economy was hit hard in 2016 when foreign investment collapsed following a fall in the prices of its major exports such as coal and copper.
       In May 2017 the IMF and Mongolia agreed on a 3-year, $425 million loan as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, the World Bank and the Asian Development Bank, the fourth-largest aid package in IMF history.
      Since then commodity prices have been rising, with Mongolia's coal exports to China up as China has been closing its mines and banned the import of coal from North Korea.
       Last month the IMF reached staff-level agreement on the fourth review of Mongolia's extended fund facility, releasing another US$434.3 million.
       "Macro-economic performance under the program remains positive, with all quantitative targets met," the IMF said, adding fiscal results in the first quarter were much better than expected as revenues rose 21 percent and net international reserves rose by $200 million.
       The exchange rate of the tugrik, which tumbled in the second half of 2016, has been relatively stable since September last year and was trading at 2,421 to the U.S. dollar today, unchanged from 2,422 at the start of this year.

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Mongolia cuts rate another 100 bps and RR by 150 bps

      Mongolia's central bank continued to ease its monetary policy stance to stimulate economic activity by cutting its policy rate by another 100 basis points to 10.0 percent and the reserve requirements of banks' tugrik deposits to 10.5 percent from 12.0 percent.
      The Bank of Mongolia (BOM) has now cut its policy rate by 500 basis points since December 2016 as the economic outlook has improved after a reform program with the International Monetary Fund (IMF) was agreed in May 2017.
      Mongolia's inflation rate was unchanged at 6.9 percent in February and January, off highs of almost 15 percent in the summer of 2014 and up from deflation in the second half of 2016.
     "External demand is improving and export prices are kept high and have a positive impact on the balance of payments and economic activity, BOM said, adding inflation will continue to stabilize around its target level of 8.0 percent.
     Mongolia's economy was hit hard by the fall in commodity prices in 2014 and 2015, with its tugrik plunging in the second half of 2016, forcing the central bank to raise rates sharply.
      In May last year the IMF and Mongolia agreed on a 3-year, $425 million loan as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, the World Bank and the Asian Development Bank, the fourth-largest aid package in IMF history.
      Since then commodity prices have also been rising, with Mongolia's coal exports to China up as China has been closing its mines and banned the import of coal from North Korea.
      In February the IMF completed its third review of Mongolia's extended fund facility, saying the economy was doing better than expected, led by commodity exports and a pickup in domestic demand.
      The IMF forecast growth this year of 5.0 percent and 6.3 percent in 2019, saying currency reserves have risen by $1.8 billion, government debt has fallen sharply, and this has resulted in a largely stable exchange rate, a fall in interest rates and improved the government's debt service.
      Last year Mongolia's economy grew 5.1 percent, up from 1.2 percent in 2016.
      The fiscal deficit narrowed to 1.9 percent of Gross Domestic Product in 2017, sharply below the target of 10.6 percent and 17 percent in 2016, and authorities are aiming for continued prudence this year while strengthening tax administration and continuing public investment projects.
      Mongolia is also strengthening its banking system, passed a new Bank of Mongolia law and work is underway to improve the regulatory and supervisory framework and a new deposit insurance law.
      The exchange rate of the tugrik has been appreciating since early 2017 and was trading at  2,393.5 to the U.S. dollar today, up 1.2 percent this year and  up 3.7 percent since the start of 2017.

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Mongolia cuts rate 100 bps, economy tops expectations

     Mongolia's central bank cut its policy rate by a further 100 basis points to 11.0 percent as it continues to support an expansion of economic activity and employment, adding inflation is stable while the performance of the economy this year has exceeded expectations.
       The Bank of Mongolia (BM) has now cut its rate by 300 basis points this year and by 400 points since December 2016 as the economy bounces back, helped by international support, from the sharp drop in the prices of the country's key exports of copper and coal.
        Mongolia's inflation rate eased to 6.5 percent in November from 6.9 percent in October and the BM said it expects inflation to remain stable around its target of 8.0 percent.
        Economic growth in the first nine months of this year have surpassed expectations, BM said, pointing to the mining and construction sectors. Foreign trade has also improved, which will reduce the payment burden from external debt.
      But business lending and sectors that are less dependent on coal mining still need support, the central bank added. Minerals, such as copper and coal, account for 90 percent of Mongolia's exports.
       Mongolia's Gross Domestic Product grew by an annual rate of 5.8 percent in the first 9 months of this year and last week the International Monetary Fund confirmed it expects growth this year of 3.3 percent, saying this was "considerably better" than expected in May when a reform program was agreed that helped boost investors' confidence.
       For 2018 the IMF has forecast growth of 4.2 percent as the domestic economy revives.
       In May the IMF approved a 3-year, $425 million loan to Mongolia as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, China, the World Bank and the Asian Development Bank, the fourth-largest package in IMF history.
       The package supports the government's economic recovery program that is aimed at building foreign exchange reserves, putting debt on a sustainable path, strengthening the banking sector and securing sustainable growth.
       On Dec. 15 the IMF completed its first and second reviews of Mongolia's performance under the IMF's 3-year Extended Fund Facility, allowing it to draw about US$79.1 million, bringing total disbursements to $118.6 million.
       "All quantitative targets under the program have been met," the IMF said, adding the combination of strong policy implementation and a supportive external environment had helped authorities over-perform on all the targets, including structural reforms, even with a change in government in September.
      "The authorities are moving ahead with an ambitious structural reform agenda that will help sustain growth over the medium term, promote diversification and competitiveness, and mitigate the boom-bust cycle," IMF said.
      With better-than-expected growth and improving confidence, the exchange rate of the tugrik has stabilized allowing external financing cost to fall and foreign reserves to recover.
       Strong growth and tight expenditure control has boosted government revenues, allowing the fiscal deficit to decline to around 7.6 percent of GDP this year from 17 percent in 2016.
       The proposed 2018 budget is in line with the reform program's planned deficit of 6.5 percent.
       After falling sharply in the second half of last year, the tugrik has been appreciating since early January this year and was trading around 2,427 to the U.S. dollar today, up 2.2 percent this year.

Mongolia holds rate to stabilize inflation around target

      Mongolia's central bank retained its policy rate at 12.0 percent "to stabilize inflation around the target rate and thereby facilitate the stability of the macroeconomic environment in the medium to long run."
      The Bank of Mongolia (BM) cut its rate by 200 basis points in June, its first cut this year and the second cut following 100 point cut in December 2016 as the bank unwinds a 450-point rate hike in August 2016 to stabilize the exchange rate of the tugrik and preserve international reserves.
      Mongolia's inflation rate rose to 5.0 percent in August from 3.4 percent in July, in line with its target of keeping inflation below 8 percent for 2017 to 2019.
      Economic growth in Mongolia in the first half of the year topped forecasts, with growth at an annual rate of 5.3 percent, the BM said in a statement issued on September 19 and based on a meeting by the monetary policy committee on September 15.
      "Furthermore, economic growth is expected to accelerate and inflation is expected to stabilize around the medium term target rate of 8 percent," the BM said, adding the economy is currently stimulated by improved external demand, relatively high prices of major export commodities and increased investment in the mining sector.
       While the bank noted the positive sentiment in financial markets and the economy, it added that "further prospects are highly conditional on export prices and volume."
      The exchange rate of the tugrik has been depreciating since July as it reverses a rise in the first 7 months of the year. The turgrik was trading around 2,465 to the U.S. dollar today, up 0.6 percent since the start of this year.
      In May the IMF approved a 3-year, $434 million loan to Mongolia as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, China, the World Bank and the Asian Development Bank, the fourth-largest package in IMF history.
       The package supports the government's economic recovery program that is aimed at building foreign exchange reserves, putting debt on a sustainable path, strengthening the banking sector and securing sustainable growth.
      With minerals, such as copper and coal, accounting for 90 percent of Mongolia's exports, the country was hit hard by the sharp drop in commodity prices and a slowdown in export markets.
       Mongolia's Gross Domestic Product grew by an annual rate of 4.2 percent in the first quarter of this year, up from 1 percent in the fourth quarter of last year and a contraction of 1.6 percent in the third quarter of 2016.

Mongolia cuts rate 200 bps after IMF-led support

    Mongolia's central bank cut its policy rate by 200 basis points to 12.0 percent, saying inflation had now stabilized around its target and uncertainty surrounding its economy had eased following the   International Monetary Fund's support package.
     It is the first rate cut by the Bank of Mongolia (BOM) this year but the second cut after a 100 point cut in December last year. I
     In August 2016 BOM hiked its rates by 450 basis point rate to stabilize the exchange rate of the tugrik and preserve international reserves and thus financial stability.
      In addition to the rate cut, the central bank said it had also narrowed its interest rate corridor to 2 percentage points, plus and minus.
      Mongolia's inflation rate rose to 3.7 percent in May from 3.4 percent in April, continuing to slowly rise after inflation turned negative from August through October last year due to slowing economic activity.
     The central bank targets inflation below 8 percent for 2017-2019, up from 7 percent for 2016 and 2015, but similar to the 8.0 percent target in 2013 and 2014. In 2012 it targeted 10 percent inflation.
     The exchange rate of the tugrik has appreciated steadily this year and was trading around 2,364 to the U.S. dollar today, up almost 5 percent since the start of this year.
       Last month the IMF approved a 3-year, $434 million loan to Mongolia as part of a wider $5.5 billion financing package that was supported by Japan, Korea, China, the World Bank and the Asian Development Bank, the fourth-largest package in IMF history.
       The package supports the government's economic recovery program that is aimed at building foreign exchange reserves, putting debt on a sustainable path, strengthening the banking sector and securing sustainable growth.
      With minerals, such as copper and coal, accounting for 90 percent of Mongolia's exports, the country was hit hard by the sharp drop in commodity prices and a slowdown in export markets.
      "Efforts to mitigate these shocks through expansionary policies were unsuccessful and resulted in unsustainable public debt, falling international reserves, and lower growth," the IMF said in May, adding that the fiscal deficit and currency depreciation together pushed government debt up to nearly 90 percent of Gross Domestic Product.
      BOM said today that fiscal measures and the joint program with the IMF had helped revive credit and the rate cut should help support economic growth and business activity, employment and financial stability.
      Mongolia's Gross Domestic Product grew by an annual rate of 4.2 percent in the first quarter of this year, up from 1 percent in the fourth quarter of last year and a contraction of 1.6 percent in the third quarter of 2016.

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Mongolia maintains rate, outlook favors rate change

    Mongolia's central bank left its policy rate unchanged at 14.0 percent, saying the monetary policy outlook favors future changes to interest rates.
     The Bank of Mongolia (BOM) lowered its rate by 100 basis points in December following a sharp 450 point hike in August to help stabilize the exchange rate of the tugrik and preserve international reserves and thus financial stability.
     The central bank noted Mongolia's inflation rate rose to 2.1 percent in February from 1.9 percent in January and is expected to rise further but still remain low and below its target due to slow economic activity, with the strength of China's economy the main factor.
     Mongolia's inflation rate tumbled to a negative minus 0.2 percent in August last year and remained negative  until November as meat prices fell by one-quarter and household incomes fell.
     But the central bank said recent changes, such as an extension of the US$2.2 billion swap line with the People's Bank of China, had eased the pressure on short-term foreign payments and had a positive impact on the economy although there is uncertainty regarding the external sector and the budget.
     Last month Mongolia reached staff-level agreement with the International Monetary Fund (IMF) on an three-year extended fund facility that includes a $440 million loan to help avert default on a $580 million bond repayment due this month by the state-run Development Bank of Mongolia (DBM).
    In addition, the Asian Development Bank, the World Bank and other countries, such as Japan and South Korea, are providing financial aid, boosting the total financing package to around $5.5 billion.
    As part of the agreement with the IMF, Mongolia has agreed that the DBM will operate in an independent, commercial manner and the central bank will not engage in quasi-fiscal activity.
     The IMF also said it expects the BOM to continue with an appropriately tight monetary policy, aiming for price stability and first cut rates if external factors and inflation permits. A new law governing the central bank will help strengthen its mandate, governance and independence.
      In its December inflation report, the central bank forecast inflation will remain low but relatively stable this year, with deflation continuing until the third quarter due to slow economic activity and low meat prices while exchange rate depreciation will help push up import prices.

    The central bank's inflation target for 2016 and 2015 was lowered to 7 percent from 8.0 percent in 2013 and 2014, and 10 percent in 2012.
    Mongolia's economy has been hard by the fall in its main export commodities, such as copper and coal, and a collapse in foreign investment.
    The central bank expects coal to remain soft as China begins to replace coal with natural gas over the next five years and focuses on solar and wind energy while copper prices are also expected to remain soft for several more years.
    The economy, which grew by an estimated 1.0 percent in 2016, was forecast by the central bank in December to expand by between 0.6 and 2.6 percent this year with inflation ranging from 1.9 to 3.9 percent.
    By 2019 the IMF expects growth to rise to around 8 percent as mining projects take off, with foreign exchange reserves rising to US$3.8 billion - more than 6 months of imports - to levels seen in 2012 before the country was hit by external shocks.
     In the fourth quarter of last year, Mongolia's Gross Domestic Product grew by an annual rate of 1.0 percent following contraction of 1.6 percent in the third quarter.
     The exchange rate of Mongolia's tugrik has been depreciating since 2011 and fell over 20 percent from mid-2016 until early January this year.
    Since then the tugrik has been slowly appreciating and was trading at 2,443 to the U.S. dollar today, up 1.6 percent since the beginning of this year and up 2 percent since a historic low on Jan. 9 of almost 2,493 to the dollar.

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Mongolia raises rate 450 bps to stabilize tugrik FX rate

    Mongolia's central bank raised its benchmark by 450 basis points to 15.0 percent to help increase the return of local currency assets and ensure more stability of the tugrik currency.
    It is the first rate hike by the Bank of Mongolia since January 2015 and follows two rate cuts in January and May this year by a total of 250 points.
    The central bank said the entry and exit of foreign currencies is showing encouraging trends but further steps to strengthen confidence in the currency was required.
    The exchange rate of the tugrik has been falling sharply since late June when the Mongolian People's Party (MPP) returned to power in a landslide parliamentary election amidst an economic slowdown from a fall in mining output.
    The tugrik was trading at 2,249.5 to the U.S. dollar today, down 11.4 percent year to date, as inflation in July declined to a year-low of 0.9 percent from 1.6 percent in June.
    The central bank said the country's trade balance had improved by US$602 million in the first half of the year while the current account deficit had narrowed.
    Mongolia's Gross Domestic Product grew by an annual rate of 1.4 percent in the first half of this year.

Mongolia cuts rate 100 bps on falling inflation

    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.

Mongolia raises rate to curb demand, C/A deficit, inflation

    Mongolia's central bank raised its policy rate by 100 basis points to 13.00 percent to dampen domestic demand, narrow the current account deficit and keep inflation low and stable.
    The Bank of Mongolia, which has been tightening its policy since July 2014, added that although inflation had eased to 11 percent at the end of last year, core inflation remains high at 12.6 percent due to the impact of exchange rate fluctuation and higher administered prices.
    In September 2014 the International Monetary Fund called on Mongolia to tighten its monetary policy due to difficulties facing the country's balance of payments and above-target inflation.
    Mongolia has been one of the world's fastest growing economies due to large investments in its mining sector but lower prices for copper and coal, its main exports, has reduced foreign reserves.

Monetary Policy Week in Review – Apr 13, 2013: Markets digest BOJ easing as 7 central banks hold rates and 1 cuts

    Last week eight central banks took policy decisions with only one (Mongolia) cutting its rate while the other seven banks (Poland, South Korea, Indonesia, Serbia, Chile, Peru and Pakistan) kept rates on hold as markets continued to digest the Bank of Japan’s unprecedented monetary easing.

    Singapore's Monetary Authority, which uses the exchange rate rather than interest rates to control inflation, also left its monetary policy stance unchanged.

    Global policy makers, such as the Federal Reserve’s Ben Bernanke and Christine Lagarde of the International Monetary Fund, have generally welcomed the BOJ’s expansionary move as a welcome contribution to global economic growth.

    Stocks markets have also rejoiced while currency markets have pushed down the value of the yen further, a move that may cause friction among Japan’s competitors, especially in Asia.

    Some of the additional money being pumped into Japan’s economy will also find its way into higher-yielding currencies, presenting central banks in those countries with the challenge of managing the inflows to avoid domestic asset bubbles and currency appreciation. 

    Central banks in South America, such as Peru and Brazil, have been tackling these challenges for some time now and at meeting in Rio de Janeiro 10 of the region’s central banks said they were paying “special attention” to global liquidity.

    In its statement this week, the Central Bank of Chile again referred to an appreciation of its peso but did not sharpen its language from last month. This was viewed as a signal by the central bank that it is concerned over the currency’s level though not worried enough to start intervening, as it last did from January through December 2011.

    In addition to Chile, which merely said Japan’s quantitative easing was reflected in a depreciation of the yen, South Korea’s Monetary Policy Committee didn’t mince words, saying the weak yen would contribute to the country’s negative output gap.

    However, in its latest economic outlook, the Bank of Korea’s staff was more balanced, referring to both pluses and minuses from Japan’s move.

    Posing an upside risk from Japan’s move, the BOK outlook said economic growth could be stronger than expected while uncertainty surrounding the value of the yen – diplomatic words for depreciation - posed a downside risk to growth.

    The BOK surprised many observers by holding rates steady last week despite the confidence-sapping, sabre-rattling by its northern neighbor and a cut in its growth forecasts. But the bank argued that it was keeping a close eye on the geopolitical risks and the economy was continuing to grow, albeit at a weak level.

    Pakistan’s central bank laid out its balancing act succinctly. A decline in inflation has given it room to cut rates except for the fact that a rate cut could encourage an outflow of “speculative” capital that is dearly needed to repay foreign loans, including to the International Monetary Fund.

    Through the first 15 weeks of this year, 77 percent of the 141 policy decisions taken by the 90 central banks followed by Central Bank News have lead to unchanged rates, the same ratio as after the first 14 weeks.

    In fact, this ratio has remained largely stable this year, illustrating how many central banks – excluding those in the major advanced economies - find themselves in a bit of a sweet spot: Economic activity is slowly strengthening while weak global demand is keeping inflation under control. 

    Globally, 19 percent of policy decisions this year have lead to rate cuts - largely by central banks in emerging economies and Japan as the first central bank in developed markets – down from 20 percent last week.

    Of the 27 rate cuts worldwide so far this year, 37 percent have come from central banks in emerging markets, while banks in other unclassified markets, such as Mongolia last week and Georgia in the previous week, have accounted for 44 percent of the cuts.

LAST WEEK’S (WEEK 15) MONETARY POLICY DECISIONS:

COUNTRY	MSCI	NEW RATE	OLD RATE	1 YEAR AGO
MONGOLIA		11.50%	12.50%	13.25%
POLAND	EM	3.25%	3.25%	4.50%
SOUTH KOREA	EM	2.75%	2.75%	3.25%
INDONESIA	EM	5.75%	5.75%	5.75%
SERBIA	FM	11.75%	11.75%	9.50%
PERU	EM	4.25%	4.25%	4.25%
CHILE	EM	5.00%	5.00%	5.00%
PAKISTAN	FM	9.50%	9.50%	12.00%

NEXT WEEK (week 16) features five central bank policy decisions, including Sri Lanka’s meeting that had been tentatively scheduled for last week, Turkey, Brazil, Sweden and Canada.

COUNTRY	MSCI	DATE	RATE	1 YEAR AGO
SRI LANKA	FM	16-Apr	7.50%	7.75%
TURKEY	EM	16-Apr	5.50%	5.75%
BRAZIL	EM	17-Apr	7.25%	9.00%
SWEDEN	DM	17-Apr	1.00%	1.50%
CANADA	DM	17-Apr	1.00%	1.00%

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Mongolia cuts rate 75 bps as inflationary pressures ease

    The central bank of Mongolia cut its policy rate by 75 basis basis points to 12.5 percent due to a decline in demand-pull and supply-driving inflationary pressures but said it was cautious about easing considering uncertainties in foreign trading and foreign investments.
    The Bank of Mongolia, which raised its rate by 100 basis points in April 2012, said the rate cut should help provide stable monetary and credit growth, ensure smooth functioning of the financial system and promote economic activity.
    "Although macroeconomic outlook enables policy rate reduction, the MPC acknowledges cautious easing of monetary policy, considering uncertainties in foreign trade and foreign investment environment," the central bank said in a statement following a meeting of its monetary policy committee on Jan. 25.
    Mongolia's inflation rate eased to 14 percent in December from 14.4 percent in November. The central bank targets inflation of less than 10.0 percent. It 2013 policy guidelines call for inflation of below 8 percent at the end of 2013 and in the range of 5-7 percent in 2014-2015.

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