Thursday, March 12, 2020

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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