CMM Market Update: Bank of Mongolia Keeps Policy Rate Unchanged at 12%

The Bank of Mongolia (BoM) held a press conference today to announce the decision of the Monetary Policy Committee. Following its regular quarterly meeting, the committee decided to maintain the policy rate at 12%, thereby extending the period of tight monetary policy for another quarter. The decision reflects a careful balance between domestic inflationary pressures and ongoing uncertainties in the external environment.

Inflation Trends

According to the BoM, nationwide inflation reached 8.8% in the past month. The increase was driven primarily by higher meat and flour prices, as well as seasonal factors. While inflation is expected to ease toward the end of the year, food prices remain volatile, and potential adverse weather conditions could add further pressure.

Economic Growth Outlook

The central bank noted that Mongolia’s economic growth forecast for 2023 has been revised down from 6.0% to 5.8%. This adjustment reflects weaker-than-expected mining output, despite strong industrial and construction activity. Coal prices continue to pose a significant risk to the country's balance of payments, given its reliance on commodity exports.

Credit Conditions

Credit growth in the banking sector has slowed to 26%. Within this, business lending is showing resilience and even accelerating, while consumer credit has started to ease. The BoM emphasized that the high policy rate continues to push up lending costs across the system, affecting households and businesses alike.

External Environment

On the international front, Mongolia’s economy remains highly dependent on China, particularly through coal and iron ore exports. While coal exports are projected to reach 90 million tons in 2024, demand from Chinese steel producers is weakening, raising questions about the sustainability of such targets.

Housing Finance Reform

The Government also announced plans to establish a State Mortgage Bank. This institution will not compete with commercial banks in retail lending but will serve as a wholesale funding source, providing lower-cost capital to commercial banks. The goal is to reduce the significant gap between average commercial mortgage rates of around 18% and concessional loans available under the government’s housing program at 6%.

Outlook

With the policy rate left unchanged at 12%, the Bank of Mongolia signaled that tight monetary policy will remain in effect until inflation shows clearer signs of moderation. The central bank underlined that future policy decisions will largely depend on food price trends and developments in global coal markets, both of which remain key sources of risk for the Mongolian economy.