It is the first rate hike by the Bank of Mongolia since January 2015 and follows two rate cuts in January and May this year by a total of 250 points.
The central bank said the entry and exit of foreign currencies is showing encouraging trends but further steps to strengthen confidence in the currency was required.
The exchange rate of the tugrik has been falling sharply since late June when the Mongolian People's Party (MPP) returned to power in a landslide parliamentary election amidst an economic slowdown from a fall in mining output.
The tugrik was trading at 2,249.5 to the U.S. dollar today, down 11.4 percent year to date, as inflation in July declined to a year-low of 0.9 percent from 1.6 percent in June.
The central bank said the country's trade balance had improved by US$602 million in the first half of the year while the current account deficit had narrowed.
Mongolia's Gross Domestic Product grew by an annual rate of 1.4 percent in the first half of this year.
The Bank of Mongolia issued the following statement:
"At its meeting on 18 August 2016, the Bank of Mongolia’s Board of Directors decided to
increase the policy rate by 4.5 percentage points to 15 percent.
Despite the inflation rate being at low level, the exchange rate of togrog against US dollar has depreciated by 7.9 percent since the end of July.
In the first half of 2016, Mongolia’s trade balance has improved by 602.0 million US dollar y-o- y and the current account deficit has declined by 2 fold. Even though there has been improvements in the balance of foreign currency inflow and outflow as such, further step-by-step actions that are aimed at stabilizing macroeconomic fundamentals, improving the credibility of togrog and increasing the togrog yield are necessary to be taken.
Therefore, the Bank of Mongolia is taking measures to increase the yield for togrog assets in order to safeguard the exchange rate of togrog and to ensure economic stability in the medium term. In addition, policies aimed at ensuring the equilibrium of togrog exchange rate through intensive implementation of adjustments in the fiscal and monetary policy will be pursued. "
Despite the inflation rate being at low level, the exchange rate of togrog against US dollar has depreciated by 7.9 percent since the end of July.
In the first half of 2016, Mongolia’s trade balance has improved by 602.0 million US dollar y-o- y and the current account deficit has declined by 2 fold. Even though there has been improvements in the balance of foreign currency inflow and outflow as such, further step-by-step actions that are aimed at stabilizing macroeconomic fundamentals, improving the credibility of togrog and increasing the togrog yield are necessary to be taken.
Therefore, the Bank of Mongolia is taking measures to increase the yield for togrog assets in order to safeguard the exchange rate of togrog and to ensure economic stability in the medium term. In addition, policies aimed at ensuring the equilibrium of togrog exchange rate through intensive implementation of adjustments in the fiscal and monetary policy will be pursued. "
www.CentralBankNews.info
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