Friday, August 1, 2014

Central Bank of Mongolia raises policy interest rate to 12 percent

The Central Bank of Mongolia has announced its Monetary Policy Council’s decision to increase the bank’s policy interest rate by 1.5 percent, an increase to 12 percent.

The policy interest rate has been at 10.5 percent since June 2013. The Governor of the Central Bank, N.Zoljargal, explained that the Bank of Mongolia took the measure in order to reduce the counterbalance losses, maintain medium and long term economic stability, avoid further possible risks facing the Mongolian macro economy, protect the public’s real incomes and to prevent the inflation rate from increasing. Ten out of fourteen members of the Monetary Policy Council attended the meeting held on July 30, and nine members supported the decision to increase the policy interest rate.

Specialists at the Central Bank say commercial bank loans would decrease considerably in response to the policy interest rate increase, and the increase would positively impact Mongolia’s economy within three to six months. The specialists still expect that mineral product prices, which have been declining for 30 months, would stabilize and ten tons of gold would be accumulated at the Central Bank by the end of this year. Currently, 90 percent of Mongolia’s total income from exports depends on the mining industry, which relies heavily on foreign direct investment. However, the Central Bank estimates that the economy’s dependence on the mining sector will decrease by up to 70 percent within two to five years.

N.Zoljargal emphasized that the Ipotek housing loan will continue to be granted and its interest rate will not change. Currently, one USD is equivalent to 1,860 MNT. He said, “The MNT-USD exchange rate is likely to stabilize at its present figure. Also, the inflation rate can be mitigated into the single-digits by the end of this year.”

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