Policy interest rate kept at 13%
- By Amarjargal Munkhbat -
- Sep 18,2023
On September 15, the Mongol Bank informed to keep the policy interest rate at 13 percent considering the current state of the economy, banking and financial markets, the outlook, and risks of the external environment. Inflation in trading partner countries decreased, trade turnover improved, transportation costs decreased, and the exchange rate against foreign currencies has been stable, which has reduced the price of imported goods and thus, inflation. In the future, inflation will continue to decrease slowly. However, because of economic activity, budget spending, increased salaries, pensions, and benefits of government employees, demand-driven inflation will increase from the previous forecast. Economic growth was higher than expected in Q2 2023, mainly due to increased activity in mining and related industries, as coal exports rose to record highs. In addition, the weakening of the fiscal outlook is a condition for increasing economic growth expectations.
The recovery of the industrial sector of China, the main trade partner of Mongolia, will be slower than expected, and the outlook for foreign demand and prices of major raw materials will deteriorate further. In addition, the escalation of geopolitical conflicts and extreme weather events occurring around the world may have a negative impact on the external economic situation. Considering the high level of external and internal uncertainty and the slow pace of inflation to the target level, the Monetary Policy Committee of the Mongol Bank has decided to maintain the policy rate at 13 percent. This decision is consistent with the goal of stabilizing inflation around the target level in the medium term and ensuring macroeconomic stability.
In the future, the next policy steps will be taken depending on how the inflation situation will change in the external and internal economic environment.