Bank of Mongolia Hikes Interest Rate 50bps to 12.25%

The Bank of Mongolia increased its policy rate by 50 basis points to 12.25% from 11.75% previously.  The Bank said: "The rapid expansion of budget expense, cash hand-out from the Human Development Fund and the high increase in loans are contributing to higher demand. This sharp increase in demand builds the pressure on core inflation even the total supply and the real capacity of economy have not added on yet. The consecutive growth in prices of non-food products from the beginning of 2011 and the current stand in yoy 11.3% prove that the increase of total demand is bringing the growth of core price."

The Bank of Mongolia last increased its policy rate in August, by 25 basis points to 11.75%, it also increased its required reserve ratio by 200 basis points to 11% at that meeting.  Mongolia recorded annual CPI inflation of 10.5% in September, compared to 11.4% in July, and the Bank's inflation target of <10%.  The Mongolian economy grew 6.1% in 2010 after contracting -1.3% in 2009.  Mongolia's currency, the Mongolian tögrög/Tugrik (MNT) has weakened by about 3% against the US dollar this year, and the USDMNT exchange rate last traded around 1,292.5

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