The Bank of Mongolia (BOM) has now cut its policy rate by 500 basis points since December 2016 as the economic outlook has improved after a reform program with the International Monetary Fund (IMF) was agreed in May 2017.
Mongolia's inflation rate was unchanged at 6.9 percent in February and January, off highs of almost 15 percent in the summer of 2014 and up from deflation in the second half of 2016.
"External demand is improving and export prices are kept high and have a positive impact on the balance of payments and economic activity, BOM said, adding inflation will continue to stabilize around its target level of 8.0 percent.
Mongolia's economy was hit hard by the fall in commodity prices in 2014 and 2015, with its tugrik plunging in the second half of 2016, forcing the central bank to raise rates sharply.
In May last year the IMF and Mongolia agreed on a 3-year, $425 million loan as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, the World Bank and the Asian Development Bank, the fourth-largest aid package in IMF history.
Since then commodity prices have also been rising, with Mongolia's coal exports to China up as China has been closing its mines and banned the import of coal from North Korea.
In February the IMF completed its third review of Mongolia's extended fund facility, saying the economy was doing better than expected, led by commodity exports and a pickup in domestic demand.
The IMF forecast growth this year of 5.0 percent and 6.3 percent in 2019, saying currency reserves have risen by $1.8 billion, government debt has fallen sharply, and this has resulted in a largely stable exchange rate, a fall in interest rates and improved the government's debt service.
Last year Mongolia's economy grew 5.1 percent, up from 1.2 percent in 2016.
The fiscal deficit narrowed to 1.9 percent of Gross Domestic Product in 2017, sharply below the target of 10.6 percent and 17 percent in 2016, and authorities are aiming for continued prudence this year while strengthening tax administration and continuing public investment projects.
Mongolia is also strengthening its banking system, passed a new Bank of Mongolia law and work is underway to improve the regulatory and supervisory framework and a new deposit insurance law.
The exchange rate of the tugrik has been appreciating since early 2017 and was trading at 2,393.5 to the U.S. dollar today, up 1.2 percent this year and up 3.7 percent since the start of 2017.
www.CentralBankNews.info
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