Monday, June 18, 2018

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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