“Foreign currency reserves enough to cover Mongolia’s imports for 9 months”The Mongol Messenger
of the Reserve Management and Financial Markets Department of the Bank of
Mongolia (BoM) A.Enkhjin gave an interview to MONTSAME News Agency about the
Central Bank’s policy during the pandemic as well as the economic outlook.
-What measures are being implemented by the Bank of Mongolia during the COVID-19 pandemic?
-The Bank of Mongolia is implementing all possible measures required to reduce the COVID-19 pandemic’s negative impact on the sectors of economy, banking, and finance based on good practices of other countries and corresponding law and regulations. Without limiting the measures to monetary policy methods, some requirements and criteria followed by banks in the framework of appropriate macro policies and monitoring are also being implemented.
The public may have heard about several announced measures that have been taken so far, such as lowering the police rate by 2 percentage points, reducing the required amount of reserves at banks, allowing loan repayment deferrals, and increasing the list of collateral allowed to acquire financing from the central bank.
Alongside these measures, the BoM is currently doing various other works, including the re-implementation of the mortgage loan program in compliance with the corresponding law approved by the parliament, deferral of the loan repayment by up to 6 months, and provision of soft loans to entities involved in gold mining in aims of increasing the foreign exchange reserves of Mongolia.
-The demand is high for mortgage loans in our country. Has there been any changes in the requirements for mortgage loans? And what is the amount of financing available for 2020?
-The BoM has made the following changes to the mortgage loan program due to the current state of the economy. Citizens who acquired mortgage loans with interest rates of 5 and 8 percent have become able to defer their loan repayment by up to 6 months once if they submitted a request to their corresponding bank before the end of April 2020. With changes made to the loan repayment dates according to the requests of the clients, loans amounting to a total of MNT 2 trillion of 38,270 borrowers have been involved in the regulation.
Furthermore, for the clients that did not make any changes to the loan repayment dates, a decision has been made to disburse the amount equal to 2 percentage points for 3 months, which is estimated to reach 34,358 borrowers with a total loan amount of about MNT 1.4 trillion.
While previously, real estate in the clients’ possession was the only available form of collateral as down payment to acquire mortgage loans, changes were made to the procedure, making it possible to also use real estate in the co-borrower’s possession as collateral. As a result, people who do not possess any real estate under their name, such as young families, now have a more flexible set of conditions to be involved in the mortgage loan program.
The central bank is also working in cooperation with the Capital City Housing Corporation on a new option for public administrative and public special servants working in high-risk environments, in which they will be able to hold possession of apartments through rental purchase.
As for the financing of the program, banks have provided a total of MNT 120 billion allocated by the BoM in the first half of 2020 to 1,646 borrowers. In the duration up to the end of 2020, plans are currently set in place for both sides of the BoM and commercial banks to provide MNT 150 billion, giving out a total of about MNT 300 billion to about 4,500 borrowers. Moreover, it is estimated that about 1,000-1,500 officers will be able to own apartments through rental purchases in the framework of the measures to be implemented by the Capital City Housing Corporation.
-Could you tell us about BoM’s effort to provide financing for gold mining companies?
-BoM and the Ministry of Mining and Heavy Industry are working together to increase the country’s foreign exchange reserve in accordance with the Law on COVID-19 prevention, fight, and mitigation of its socioeconomic impacts and the parliamentary resolution No.32 of 2020. As part of the effort, BoM made regulations to provide current assets and investments on softer terms in order to increase gold mining and concluded contracts with banks. The financing will improve the capacity of gold mining companies and raise the amount of gold sold to BoM, thus playing an important role in increasing national foreign exchange reserve. BoM has purchased 10.8 tons of gold and other precious metals in the first six months of 2020, an increase of 4.8 tons or around 80 percent compared to the same period of last year.
-Money supply has increased with the adoption of those measures. How will it affect the official foreign exchange rates?
-As stated in the Law on Central Bank (Bank of Mongolia), the main objective of BoM shall be to ensure stability of the tugrug currency. Under the objective, BoM aims to keep consumer price index inflation rate within the target range in the medium term in accordance with the State Monetary Policy Guidelines. BoM’s 2020 target range for inflation is 8 percent and the central bank has set a goal to keep inflation rate at 6 percent in the medium term. The way that the inflation rate has decreased over the last five months and was 2.8 percent on national level and 2.4 percent in Ulaanbaatar in June proves the possibility of implementing soft monetary policy. Therefore, the pressure on foreign exchange rates could be relatively minor.
-How has the foreign exchange rate changed since the beginning of the year?
-The Bank of Mongolia intervenes in the foreign exchange market from time to time in order to reduce the risk of a sharp depreciation of the tugrug, which can be temporary due to supply and demand gaps. These policy decisions are aimed at keeping inflation, which is the central bank's main goal, and ensuring the stability of the economy and financial system.
The official foreign exchange rate depreciated by 3.3 percent in the first half of 2020, and the Bank of Mongolia supplied USD 615.0 million in net foreign exchange. In addition, the Bank of Mongolia has entered into short-term MNT and USD swap agreements to support banks in ensuring their short-term liquidity.
The Bank of Mongolia will continue to maintain its policy of avoiding sharp fluctuations in the exchange rate. As of June 2020, the country's foreign exchange reserves are at USD 3.6 billion, which is enough to meet the demand for imports of products for 9 months that is required to be paid by foreign exchanges. The Bank of Mongolia has reached an agreement with the People's Bank of China to extend the MNT-RMB swap agreement for another three years. Moreover, The Trade and Development Bank (TDB) successfully repaid its USD 500 million international bond in May. This is expected to have a positive effect on the exchange rate as no major foreign payments are expected until April next year.
The trade balance, which has been in deficit since the beginning of this year, turned positive in May and June. Exports in June increased by USD 188.7 million compared with the previous month, including exports of mining sector by USD 148.9 million. In the future, coal exports will increase and efforts to support gold mining will have a positive impact on the country's foreign exchange reserves. In general, we do not see any sharp changes in the foreign exchange market and the exchange rate will be stable.
It should also be noted that Mongolia started receiving first of the funding of USD 700-800 million to be provided by international organizations and donor countries in 2020 to help overcome the difficult economic situation caused by the COVID-19 epidemic.
-How will the the repayment of foreign debts be financed in the coming years?
-As of the first quarter of 2020, Mongolia’s foreign debts amounted to USD 19.8 billion or around 143 percent of Gross Domestic Product of 2019, excluding the amount of direct investment between companies. This debt was comprised of 36.5 percent of Government debts, 10 percent of the Central bank’s debts and 53.5 percent of private entities’ debts.
As I mentioned before, the Bank of Mongolia and the People’s Bank of China have agreed to extend their local currency swap agreement by three years. As the central banks of the countries are implementing a soft monetary policy amid the COVID-19 pandemic, interest rate has been showing a stable fall at global market with decreasing financial costs and expenses.
In addition, international rating agencies, such as Fitch and Standard & Poor’s have affirmed Mongolia's credit rating to remain unchanged at 'B' with a stable outlook by taking into consideration of external and internal situations of Mongolia’s economy. To conclude, it considered fully possible to reduce the amount of foreign debts as well as to re-finance with the least possible pressure on the economy.
-Thank you for your time.