Mongolia maintains rate as inflation seen around target

     Mongolia’s central bank left its policy rate steady at 11.0 percent, saying inflation is expected to remain around its target level amid heightened risks for the global economic outlook and the uncertain outlook for commodity prices.
     The Bank of Mongolia (BOM), which has kept its rate steady since raising it by 1 percentage point in November 2018 to bolster the exchange rate of the tughrik, said fiscal discipline, resiliency in the banking sector, and independence of the central bank is essential to weather the potential external risks and to sustain macroeconomic stability.
    In its statement from June 19, BOM’s monetary policy committee noted the deepening of the trade dispute between the U.S. and China, which is amplifying external risks, and said a potential deterioration in its terms of trade coincided with the completion of a large mining project and the maturing of large external debt, which makes it important to sustain the external balance and build financial buffers at all levels, including households, companies, local regions and communities.
     At an unscheduled policy meeting on Nov. 27, 2018  BOM raised its rate after the tughrik came under pressure in the second half of the year and ended 8.0 percent lower during the year in light of a growing external deficits from a relatively high fiscal deficit, rising U.S. interest rates and China’s decision to limit coal imports.
     But this year the tughrik has been more stable, with the tughrik today trading at 2,661 to the U.S. dollar, down just under 1 percent this year, as economic growth has improved and inflation stabilized.
     Mongolia’s inflation rate rose to 7.9 percent in May from 7.0 percent in April due to higher meat prices from a disruption in domestic supply and gasoline prices.
    But BOM demand-driven core inflation was stable. BOM’s inflation target is 8.0 percent.
    Rapid growth in mining, an expansion in corporate lending and increased investments and tight fiscal policy have helped boost Mongolia’s economy, with growth in the first quarter up 8.6 percent, the fifth consecutive quarter of accelerating annual growth, and the strongest expansion since the third quarter of 2014.
     BOM has forecast 2019 growth of at least 6.9 percent after growth of over 6 percent in 2018.
     In January the International Monetary Fund (IMF) said Mongolia’s growth remains strong and tight fiscal policy led to a surplus in 2018, adding authorities dampened excessive domestic demand that was limiting the build-up of international reserves and were ready to tighten further.

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