Wednesday, March 24, 2021

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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