Mongolia raises rate to curb demand, C/A deficit, inflation

    Mongolia's central bank raised its policy rate by 100 basis points to 13.00 percent to dampen domestic demand, narrow the current account deficit and keep inflation low and stable.
    The Bank of Mongolia, which has been tightening its policy since July 2014, added that although inflation had eased to 11 percent at the end of last year, core inflation remains high at 12.6 percent due to the impact of exchange rate fluctuation and higher administered prices.
    In September 2014 the International Monetary Fund called on Mongolia to tighten its monetary policy due to difficulties facing the country's balance of payments and above-target inflation.
    Mongolia has been one of the world's fastest growing economies due to large investments in its mining sector but lower prices for copper and coal, its main exports, has reduced foreign reserves.


    The Bank of Mongolia, which raised it rate by 150 basis points in 2014, issued the following statement:

"The Monetary Policy Committee (MPC) of the Bank of Mongolia decided to increase policy interest rate by 1.0 percentage point to 13%, at its recurrent meeting on January 14, 2015.

Although, annual inflation measured by CPI declined to 11.0% nationwide at the end of 2014 owing to sustainable positive change in the composition of inflation over the last two years, core inflation remains high at 12.6% due to impacts of exchange rate fluctuation and increase in administered prices. In addition, foreign exchange inflows remain muted and foreign direct investments have been deteriorating for the third consecutive year.
Therefore, the MPC took this policy action to support external macroeconomic balance through increasing togrog yield until signs of improvement on terms of trade condition and foreign exchange inflows are noted.
The decision shall positively affect reducing aggregate demand and current account deficit in the short term, maintaining inflation at low and stable level, and promoting macroeconomic and financial stability.
Extracts of the meeting minutes will be released in two weeks on the Bank of Mongolia’s website. "

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