Ulaanbaatar /MONTSAME/. During its scheduled meetings on December 15-16, 2022, the Monetary Policy Committee of the Bank of Mongolia (MPC) decided to raise the policy rate by 1 percentage point to 13 percent by majority vote, taking into consideration the current state of the economy and financial markets as well as the outlook and risks to the domestic and external economic environment.

This marks the fourth consecutive rate hike this year, pushing borrowing costs to the highest since May 2017. The move aims to stabilize the inflation rate in the medium term, maintain the relative return of the Mongolian national currency Tugrik (MNT) and ensure both internal and external balances of the economy. The annual inflation rate in Mongolia stood at a three-month high of 14.5 percent in November 2022, unchanged from its previous month.

In this regard, the Governor of the Bank of Mongolia, B. Lkhagvasuren highlighted that the inflation has been declining in line with the projection in recent months, however, in the coming quarters, the effects of the increase in global inflation, food, and fuel prices will grow more than previously expected, and government budget expenditures and wages will likely increase higher than expected.”

“Economic activity was relatively stronger than expected in the third quarter of 2022, surpassing the pre-COVID-19 levels. In recent months, the mining and transportation sectors have recovered, and the construction sector has grown due to railway construction. Non-mining sectors such as trade, services, and net product taxes have continued to intensify in the third quarter of 2022.”

“The labor market has returned to its pre-pandemic levels, and household consumption has been steadily increasing for the past 4 consecutive quarters. All of which have supported economic growth. Furthermore, the economic outlook will depend mainly on China’s “Zero-Covid” policy, the situation at border ports, the deficit in the balance of payments, and the actual export earnings.” added the Governor of the Bank of Mongolia B. Lkhagvasuren.

During the discussion of the main direction of the Government`s monetary policy in 2023, he said that The MPC is pursuing a policy to stabilize it at a single-digit number in 2023. Since Mongolia`s economy is affected by unfavorable external conditions, it is necessary to pay attention to the macro-economic policy in the coming year and improve industrial development in the medium and long term.”

The subsequent policy actions on whether to pursue further monetary tightening would depend on developments in the external and domestic economy and outlook changes in inflation and macroeconomic conditions.