Ulaanbaatar /MONTSAME/. The Monetary Policy Committee (MPC) of the Bank of Mongolia a held scheduled meeting on January 28th, 2022. Taking into consideration current state of the economy and financial markets as well as outlook and risks to the domestic and foreign economic environments, the MPC decided to:

1.    Raise its policy rate by 0.5 percentage point to reach 6.5 percent;

2.    Increase the percentage of required reserves in MNT deposits by 2 percentage points to 8 percent;

3.    Change the terms of long-term repo trade financing for the non-mining export and processing industries;

The spread of the Omicron variant of the COVID-19 is increasing, the global economic outlook is deteriorating, and cost-push inflation is rising sharply in many countries due to transportation, logistics delays, and supply chain failures. In our country, the price of imported goods has also increased due to the continuing delays in foreign trade. Rising prices for meat, vegetables, fuel and imported goods triggered the price increases in other goods and products more than it was expected. Annual headline inflation reached 13.4 percent nationwide and 14.8 percent in Ulaanbaatar city as of December 2021.

Demand-driven inflation is expected to continue to gradually increase following the economic activity, while the outlook of supply-driven inflation will depend on how quickly border constraints, transportation and logistics delays are addressed.

Progressive monetary and macroeconomic policies and financial regulatory measures to mitigate the negative effects of the pandemic have had a positive impact on supporting economic recovery and maintaining financial sector stability. In the last two months of last year, the mining and transportation sectors fell short of expectations, while the manufacturing, trade and service sectors outperformed expectations as business constraints eased and domestic demand increased.

The monetary policy stance has been tightened as there is a risk that inflation expectation will increase and the second round of effects from the inflation will intensify as supply shortages continue due to border constraints. In addition, the fact that the base interest rate in foreign markets is expected to increase created conditions for raising the policy rate.

The central bank will adjust its monetary policy stance in a timely manner in line with the developments of economic recovery and inflation outlook.