Policy rate remains unchanged ‘for now’

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Mongol Bank’s Monetary Policy Committee has decided to keep the policy rate at 9 percent to observe the situation and await results from the previous cut down.

“The Monetary Policy Committee reduced the policy rate by one percentage point to 9 percent in March. The decision was made two months ago but we’ve yet to see its impact. A proposal to further lower it by 0.5 percentage points was made during the meeting, but members decided to wait for the time being until we get results from the previous two measures we took,” explained the central bank’s President B.Lkhagvasuren.

“Inflation rate hit 3.2 percent at national level and 3.5 percent in Ulaanbaatar in May this year. Local fuel prices fell in correlation with the decreasing oil prices on the international market, slowing down the economic growth. In consideration of this, inflation is expected to be low this year. The measures taken as a response to COVID-19 under heightened state of preparedness are showing positive impacts to the economy. However, foreign demand and preventive measures against the virus are making it difficult to soften the monetary policy,” he added.

The committee is expected take macro prudential policy to maintain stability in the banking system and prevent substantial disruptions in the economy in connection with the COVID-19 pandemic. Policy actions included in this areto stabilize the banking sector by curbing dollarization of financial sources of banks, and to hold the value of the tugrug against foreign currencies by reducing bank incentives on mandatory tugrug reserve based on high-interest savings held in foreign currencies or interest-bearing foreign currency accounts.

Mongol Bank has revised the 2020 economic prospect for Mongolia, estimating that GDP will shrink by 0.9 percent at the end of the year. This comes a few days after large international organizations renewed their 2020 outlook for the Mongolian economy. In particular, the World Bank forecasts growth to become -0.5 percent in 2020, the International Monetary Fund predicts it will reach -1 percent and the Asian Development Bank revised it to -1.9 percent.

The central bank doubts potential burden on the tugrug.

“There will not be constrains on the tugrug exchange rate. Mongolia’s export declined by 30 percent while import curbed by 10 percent. Foreign trade came out negative in the first three months of the year, but by the end of May, it came out with a little bit of surplus. This is directly linked to the recovery in coal export. Nevertheless, the balance of payment is showing a deficit of 1 billion MNT. This could affect the value of the tugrug,” B.Lkhagvasuren stated.

Dulguun Bayarsaikhan