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Mongolia Raises Rates Amid Debt Pressure Mongolia Raises Rates Amid Debt Pressure(0)

Mongolia’s central bank raised interest rates this week by 1.5 percentage points to 12% to help stabilize an economy that’s been buffeted by high inflation and falling foreign investment in its mining sector.

Foreign investment in Mongolia’s mines has fallen rapidly, in part due to frequent changes in local regulations governing the sector. To compensate, the government has pushed expansionary fiscal and monetary policies, funded by a rise in external debt to more than 150% of gross domestic product.

Exports, especially of coal, have slowed as China’s economic growth has moderated. But demand for imported consumer goods has remained strong because of the government’s stimulus policies and pushed inflation into double digits.

Moody’s Investors Service last month warned the situation was untenable and downgraded Mongolia’s foreign currency government bond rating to B2 from B1.

The agency warned that foreign exchange reserves have fallen to $1.6 billion in May from $2.2 billion at the start of the year. Mongolia’s current-account deficit and its rising external debt burden have become harder to finance as foreign investment has fallen. Instead, the government has run down foreign exchange reserves, Moody’s said.

The nation’s currency, the tugrik, has fallen over 10% against the U.S. dollar this year.

Mongolia now needs to boost foreign investment, reduce government spending and rein in still-high credit growth, Moody’s said.

The rate hike – which comes after a series of cuts last year – is a step in this direction. Mongolia’s parliament earlier this month also revoked a suspension on granting new mineral exploration licenses, according to media reports. 

Disputes with foreign investors have been a drag on the economy but there are signs these disputes could be abating. Australia’s Rio Tinto was locked in a battle with the government over costs and financing at its Oyu Tolgoi gold and copper mine in Mongolia. But the mine started production a year ago.

According to the Asia Development Bank, the mine will help drive the nation’s economic growth to 9.5% this year, lower than double-digit rates of growth in the past three years.

The ADB noted the government will need to implement tighter economic policies to reduce pressure on the balance of payments. Moody’s noted the country will need to improve the investment environment in order to boost export earnings and pare its foreign debt exposure.

“The investment regime remains unpredictable,” it said.

Mongolian foreign exchange reserves decline to worrying level Mongolian foreign exchange reserves decline to worrying level(0)

Analysts of Morgan Stanley financial services cooperation, Desmond Lee and Gaurav Singhal reported that Mongolia’s foreign exchange (FX) reserves reached 1.7 billion USD by the end of April. However, Mongolia’s FX reserves were at nearly 2.2 billion USD at the end of February, according to Mongol Bank.
Mongol Bank has not officially published its April report yet. The analysts highlighted that if the FX reserves stay in decline for a few more months, Mongolia will come closer to the two-month import cover, the same point where Mongolia received International Monetary Fund assistance in 2009.
The analysts also pointed out that during this time, when the OyuTolgoi project dispute is not fully resolved and the FX reserves are very low, the Government of Mongolia will have a hard time getting credit again.

Short URL: http://ubpost.mongolnews.mn/?p=10025

Mongolia’s Central Bank Plans to Double Currency Swap With China Mongolia’s Central Bank Plans to Double Currency Swap With China(0)

Mongolia’s central bank said it intends to extend a bilateral local currency-swap line with the People’s Bank of China for three years and double its size to 20 billion yuan.

“This will clearly increase confidence in the foreign-exchange market and strengthen the off-balance” reserves buffer, Bank of Mongolia Chief Economist Bold Sandagdorj said in an e-mail yesterday. The three-year period will begin in May, he wrote.

The nation’s foreign reserves have fallen amid lower prices for copper and coal, its main exports. Currency holdings stood at $2.44 billion at the end of January, according to the central bank’s website, and were 40 percent lower than a year earlier. Mongolia’s tugrik has declined 20 percent in the past 12 months to 1,767.50 per dollar, the sixth worst performance among more than 100 exchange rates tracked by Bloomberg.

The currency-swap line with China will give Mongolia “an adequate reserve buffer to maintain overall macro balance,” he said. The authority expects a substantial decline in Mongolia’s trade- and current-account deficits this year, which will reduce demand for foreign exchange, according to Bold.

In the first two months of 2014, Mongolia’s exports rose almost 18 percent to $594.6 million, while imports fell about 24 percent to $613.9 million, according to the National Statistics Office. The trade deficit of $19.3 million was 94 percent lower than a year earlier.

The deficit has narrowed due to “recovered exports and adjustments of the flexible exchange rate,” Bold said.

To contact the reporter on this story: Michael Kohn in Ulaanbaatar atmkohn5@bloomberg.net

To contact the editors responsible for this story: John Liu atjliu42@bloomberg.net Amit Prakash, Anil Varma

BANK OF TOKYO MITSUBISHI UFJ TO OPEN ITS REPRESENTATIVE BANK OF TOKYO MITSUBISHI UFJ TO OPEN ITS REPRESENTATIVE(0)

October 22, 2013

The Bank of Mongolia (BoM) has allowed the Bank of Tokyo Mitsubishi UFJ Ltd (BTMU) to open its representative office in Ulaanbaatar.

A preparation to this measure began last year when the Japanese side, having decided to open their representation, carried out feasibility studies and submitted application materials to the BoM last May. Since the related law allows, the BoM president issued an order on giving an official permission to the BTMU.

The BTMU is the largest bank in Japan, founded in 2006 with the merger of the Bank of Tokyo-Mitsubishi, Ltd. and UFJ Bank Ltd. The bank serves as the core retail and commercial banking arm of the Mitsubishi UFJ Financial Group.

The bank’s headquarters is located in Marunouchi, Chiyoda, Tokyo, with 772 other offices in Japan and 76 offices overseas.

www.mad-mongolia.com

FOREX AUCTION RUNS FOREX AUCTION RUNS(0)

Ulaanbaatar /MONTSAME/ On the Foreign Exchange Auction held Tuesday, the Bank of Mongolia (BoM) received bid offer of USD and CNY from local commercial banks. The BoM sold USD 22.0 million and CNY 100.5 million to the local commercial banks.

The same day, the BoM received bid offer of USD for Swap agreement from local commercial banks and sold USD 40.8 million.

SOURCE OF THIS ARTICLE : Montsame.mn

Bank of Mongolia should brace for impact of runaway growth, says IMF Bank of Mongolia should brace for impact of runaway growth, says IMF(0)

The Bank of Mongolia should do more to avoid losing control of the country’s rapidly growing economy, as inflation creeps up and financial stability risks rise, the International Monetary Fund (IMF) said yesterday.

Aided by a recent mining boom, Mongolia’s economy grew 12.5% in 2012 and is expected to deliver a similar performance this year. The CIA World Factbook currently ranks it as the third fastest-growing country in the world.

At the conclusion of its Article IV consultation with Mongolia, a statement by the IMF noted the country’s rapid growth and said medium-term prospects remain “promising”. However, “expansionary macro policies are likely to put pressure on inflation and the balance of payments in the period ahead”.

Further risks derive from the uncertain external environment. The IMF said all emerging markets are likely to be hit by the reversal of expansionary monetary policy in advanced economies, while China, a major investor in the mining sector, is expected to shift from investment-led to consumption-led growth. “Mongolia needs to change course to avoid becoming highly exposed to these external shocks,” the review said.

Much of the burden of these changes falls to the central bank. The Bank of Mongolia has been pursuing expansionary monetary policy to counterbalance the effects of declining foreign investment and export earnings, and the IMF warned of a “rapid credit growth” in recent months.

The review urged the central bank to tighten policy, or at least to back off its stimulus measures. “We welcome the Bank of Mongolia’s intention to phase out these programmes over time,” the Fund said.

The Bank of Mongolia must also turn its hand to financial stability risks, the IMF said. The review praised the central bank for its handling of the recent failure of Savings Bank, but said efforts should be made to strengthen banking supervision and the country’s provisioning regime.

The IMF also pushed for action by the government, recommending a package of fiscal tightening, and telling law-makers to press ahead with new investment legislation, which will make the environment for domestic and foreign investors “more predictable and transparent”.

Mongolia to Take Over Savings Bank as Fifth-Largest Lender Fails Mongolia to Take Over Savings Bank as Fifth-Largest Lender Fails(0)

bloomberg.com  Jul 23, 2013

Savings Bank, Mongolia’s fifth-largest lender, has been declared insolvent after affiliated companies defaulted on loans, and will be taken over by a state-owned competitor, the central bank said.

State Bank will take over Savings Bank’s 503 branches starting today, Danjilaa Ganbat, director of the banking supervision department at Mongol Bank, said at a press conference in Ulaanbaatar yesterday. Savings Bank was owned by Just Group, a holding company based in the capital, whose other assets include Just Oil LLC. The takeover is the first by the government since 2009.

With 1.7 million customers in a nation of 2.9 million, Savings Bank accounts for about 8 percent of active banking assets and 55 percent of government financial services, such as disbursement of pensions and payment of utility bills, according to the central bank. Other lenders are healthier, said Dambadarjaa Jargalsaikhan, an economist and commentator on television show De Facto.

“The central bank now has things in control,” Jargalsaikhan said. “I don’t think all the banks are like this but we should draw certain lessons. There was too much risk on one individual and there was a problem with poor corporate governance and conflicts of interest.”

Sharavlamdan Batkhuu, Just Group’s controlling shareholder, and other companies in the group have defaulted on loans since 2011, Ganbat said.

Batkhuu didn’t reply to an e-mail seeking comment. Savings Bank didn’t answer a phone call or comment when a reporter visited the lender’s office yesterday.

Coal Exports

Mongolia’s resource-based economy has been hit by a decline in coal exports, which plunged to $542.4 million in the first six month of the year from $1 billion a year earlier. Total first-half exports fell 10 percent from a year earlier.

The World Bank in April cut its forecast for Mongolia’s 2013 economic growth to 13 percent from 16 percent, citing declines in exports and foreign investment. FDI in the first five months of the year reached $1.21 billion, down from 1.47 billion during the same period last year.

Savings Bank is the third lender to be taken over by the government, following Anod Bank JSC in 2008 and Zoos Bank JSC in 2009. The lender has losses of 180 billion tugrik ($122 million) and its working capital is 94 billion tugrik lower than its assets, the central bank said.

All 503 Savings Bank branches of Savings Bank were closed yesterday as the assets moved to State Bank, Ganbat said. While the process should be complete by 9 a.m. today, there may be some delays, he said.

State Bank was formed by the government in 2009 to hold Anod Bank and Zoos Bank and functions like a commercial lender. Mongol Bank is the nation’s central bank.

Bank of Mongolia launches ‘interest rate corridor’ Bank of Mongolia launches ‘interest rate corridor’(0)

At its meeting on 27 February 2013, the Monetary Policy Committee (MPC) of the Bank of Mongolia decided to establish an interest rate corridor based on macroeconomic conditions, demand for money market development and international experiences on monetary policy implementation.

Establishing the interest rate corridor and improving monetary policy instruments will play a significant role to reduce volatility in short-term interest rates, improve interest rate channel of monetary transmission mechanism and bring more transparency in the implementation of monetary policy.

In conjunction with making the decision, interest rate structure of the monetary policy instruments is fully changed and new monetary policy instruments such as overnight repo and overnight deposit facilities are launched.

The interest rate corridor around policy interest rate consists of two end-of-day standing facilities. The rate of overnight repo facility will become the ‘ceiling’ (policy interest rate + 2 percentage points) and the rate of overnight deposit facility will serve as the ‘floor’ of the corridor (policy interest rate – 2 percentage points). This policy measure shall provide a core condition for enhancing the efficiency of interbank market, decreasing the volume of outstanding central bank bills, reducing the interest rate of financing to banks as well as promoting economic activity.

SOURCE OF THIS ARTICLE : Business Mongolia

Governor Zoljargal meets Deutsche Bundesbank President in Germany Governor Zoljargal meets Deutsche Bundesbank President in Germany(0)

March 29 (Bank of Mongolia) In mid March, Governor of the Bank of Mongolia N.Zoljargal has paid a working visit to the Federal republic of Germany. During his visit, on 14th of March, the first official meeting between Governor N.Zoljargal and Jens Weidmann, President of the Central bank of Germany, was held at the main building of the Deutche Bundesbank which located in Frankfurt city.

The meeting took place in a formal and friendly way as the Governors exchanged their views on expanding mutually beneficial cooperation. Furthermore, they settled to collaborate on various matters that needed to be solved.

The Ambassador, extraordinary and plenipotentiary from Mongolia to the Federal Republic of Germany Mr. B.Davaadorj and the Secretariat to the Executive Board at President’s Office Mr. B.Kaltenhauser have also taken part of this meeting.

Monetary Policy of Mongolia: Will it Finally Hit its Targets in 2013? Monetary Policy of Mongolia: Will it Finally Hit its Targets in 2013?(0)

March 28 (Mongolian Economy) The Bank of Mongolia has been criticized for several years now for not being able to pursue monetary policies that had effective results. Undeniably, policy targets proposed within the monetary policy, especially with regard to inflation rate were rarely met in the past.

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