The Board of Directors of the Bank of Mongolia have made a decision to increase the policy rate by 0.5 % to 13.25, with reserves required from one percent to 12 percent, from April 17th 2012.
The Mongolian economy is still continuingly affected by the deepening of inflation which is causing a multitude of negative factors.
The price of meat has increased by 51.8 % since the beginning of this year; this includes the 68.2 % of inflation that affected Ulaanbaatar for the first three months of 2012.
In addition, petrol prices have increased by 7.1 percent since the beginning of the year. Commodities, excluding food, have now increased by 2.4 %; this includes the 29.3 % of the total rise in inflation. Due to an increase in the total demand of supplies, there is a risk of an inflation frenzy.
Particularly at this time when there is an abundant demand for capital investment coming from outside of Mongolia. There is a possibility that this will intensify inflationary pressures. Therefore the Bank of Mongolia has arranged to tighten the monetary policy by increasing the interest rate to tackle this situation.
“This clearance is the most suitable form in which the influx of capital can be controlled in our country. The East European countries, China and Turkey have also chosen this route. The amount of reserves required is administrative and is yet to be decided; the decision will follow on the 2nd of next month. This step will increase the available money reserve of banks. The available money reserve will make it possible to manage the movement of money” said D.Boldbaatar Director of Monetary policy and Research Department, Bank of Mongolia.