Ulaanbaatar /MONTSAME/. The Monetary Policy Committee of the Bank of Mongolia (BoM) made decisions at its irregular meeting held today to set the policy rate at 6 percent, reducing it by 2 percentage point. Moreover the committee lowered the reserve requirement ratio of tugrug by 2.5 percentage point to 6 percent, restructure and defer the consumer loans until July 1, 2021, and introduce long-term refinancing tools to support SMEs and non-mining exports.

“This decision is aimed at mitigating the negative impact of the COVID-19 pandemic on the economy and the banking and financial sector, as well as the financial burden on citizens, businesses and financial institutions. It will also support financial and economic stability without compromising inflation targets in the medium term. Annual inflation reached 2.4 percent nationwide in October 2020 and 2.6 percent in Ulaanbaatar.

Inflation will increase slightly in the coming months due to the base period, but will remain low due to economic activity and will not exceed the target level. The economy contracted by 9.7 percent in the first half of 2020 due to the pandemic, but it slowed to -3.1 percent in the third quarter, improving the balance of payments forecast.

The quarantine measures imposed in November to curb the spread of the pandemic have had a positive effect on public health and but it expected to slow economic recovery in the short term.

Real economic, financial and commodity market indicators show that the global economic activity is recovering in the second half of 2020.

Although vaccine testing is nearing completion, the second and third waves of the pandemic hit many countries, and economic uncertainty remains high.

Monetary and macroeconomic prudential measures to mitigate the pandemic will increase financing for SMEs and non-mining exports, reduce the cost of financing, mitigate the domestic economic downturn, and support the stability of the banking sector.

The Bank of Mongolia will continue to take appropriate measures to prevent credit disruptions in the banking system while supporting the liquidity of banks, households and enterprises” reports B.Lhagvasuren, the Governor of the Bank of Mongolia.

Director of the Monetary Policy Department B.Bayardavaa said, “The Bank of Mongolia set the policy rate at 6.4 percent in 2007. This is the first time that the policy rate has been reduced to 6 percent since then.

The policy rate has been reduced by a total of 5 percentage points this year, as it is expected that the reduction will not lower the ability to restore economic stability and reduce inflation in the medium term. The reason of decreasing the policy rate in conjunction with the prudent macroeconomic policies is that the decision of the Monetary Policy Committee becomes an impetus to ease the financial situation.

The reduction of banks' required reserves ratio by 2.5 points is releasing MNT 400 billion in the banking system. This is a measure to support the bank's highly liquid assets, enabling the banks to further create relatively flexible conditions for its borrowers and renew their contracts.

Deferred loan repayments will ease the burden on the solvency of individuals and businesses, which in turn supports the economy through monetary policy."