Mongolia cuts rate 3rd time in 2020 to support recovery

September 15, 2020

Mongolia’s central bank cut its policy rate for the third time this year, saying this should help it meet its inflation target, ease the economic slowdown and support the economic recovery.

The Central Bank of Mongolia (Mongolbank) lowered its policy rate by another 100 basis points to 8.0 percent and has now cut it 300 points this year following earlier cuts in March and April.

The bank said in a statement from Sept. 14 the rate cut was aimed at increasing the amount of loans provided by the banking sector to the real economy and reduce interest rates, reflecting the current state of the economy and financial markets, future prospects, and uncertainties and risk in the domestic and international environment.

Mongolia’s inflation rate dropped to 2.1 percent in August from 3.4 percent in July but Mongolbank said it expects inflation to rise in coming months due to the comparison with last year though it will still remain around its current level and not exceed its target in coming years.

Mongolbank targets inflation of 8 percent, plus/minus 2 percentage points, this year and 6 percent in the medium term.

Mongolia’s economy contracted 9.7 percent year-on-year in the second quarter, up from a 10.7 percent fall in the first quarter, the sharpest decline in economic output in 20 years.

However, the bank said monetary and fiscal stimulus, along with a recovery of the external environment, should help the economic downturn to subside in the second half of this year before returning to “normal” in 2021.

“Global economic activity has been volatile since the second half of this year due to the COVID-19 pandemic but is expected to improve,” Mongolbank said, adding it would continue to support the liquidity of banks, households and businesses and take measures to prevent any disruption to credit in the banking system.

On Aug. 7 the bank’s monetary policy committee decided at an unscheduled meeting to extend its measures to restructure and extend the maturity of consumer loans for lenders experiencing difficulties due to the current economic circumstances to the end of this year.

Under its original decision from April, loans for some 76,000 borrowers have been amended covering consumer loans of 663 billion tughrik.

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