By CentralBankNews.info
Mongolia’s central bank cut its policy rate by a further 100 basis points to 11.0 percent as it continues to support an expansion of economic activity and employment, adding inflation is stable while the performance of the economy this year has exceeded expectations.
The Bank of Mongolia (BM) has now cut its rate by 300 basis points this year and by 400 points since December 2016 as the economy bounces back, helped by international support, from the sharp drop in the prices of the country’s key exports of copper and coal.
Mongolia’s inflation rate eased to 6.5 percent in November from 6.9 percent in October and the BM said it expects inflation to remain stable around its target of 8.0 percent.
Economic growth in the first nine months of this year have surpassed expectations, BM said, pointing to the mining and construction sectors. Foreign trade has also improved, which will reduce the payment burden from external debt.
But business lending and sectors that are less dependent on coal mining still need support, the central bank added. Minerals, such as copper and coal, account for 90 percent of Mongolia’s exports.
Mongolia’s Gross Domestic Product grew by an annual rate of 5.8 percent in the first 9 months of this year and last week the International Monetary Fund confirmed it expects growth this year of 3.3 percent, saying this was “considerably better” than expected in May when a reform program was agreed that helped boost investors’ confidence.
For 2018 the IMF has forecast growth of 4.2 percent as the domestic economy revives.
In May the IMF approved a 3-year, $425 million loan to Mongolia as part of a total financing package worth $5.5 billion that was supported by Japan, Korea, China, the World Bank and the Asian Development Bank, the fourth-largest package in IMF history.
The package supports the government’s economic recovery program that is aimed at building foreign exchange reserves, putting debt on a sustainable path, strengthening the banking sector and securing sustainable growth.
On Dec. 15 the IMF completed its first and second reviews of Mongolia’s performance under the IMF’s 3-year Extended Fund Facility, allowing it to draw about US$79.1 million, bringing total disbursements to $118.6 million.
“All quantitative targets under the program have been met,” the IMF said, adding the combination of strong policy implementation and a supportive external environment had helped authorities over-perform on all the targets, including structural reforms, even with a change in government in September.
“The authorities are moving ahead with an ambitious structural reform agenda that will help sustain growth over the medium term, promote diversification and competitiveness, and mitigate the boom-bust cycle,” IMF said.
With better-than-expected growth and improving confidence, the exchange rate of the tugrik has stabilized allowing external financing cost to fall and foreign reserves to recover.
Strong growth and tight expenditure control has boosted government revenues, allowing the fiscal deficit to decline to around 7.6 percent of GDP this year from 17 percent in 2016.
The proposed 2018 budget is in line with the reform program’s planned deficit of 6.5 percent.
After falling sharply in the second half of last year, the tugrik has been appreciating since early January this year and was trading around 2,427 to the U.S. dollar today, up 2.2 percent this year.