Yesterday Bank of Mongolia raised its policy rates by 1 percent and current rate is set at 13 percent. The reason for this raise was explained by Mr B.Otgontugs, Professor at NUM and Member of the Monetary Policy Council as:
- To intensify domestic economic and increase its flow
- To curb the inflation to 10, 9 and 8 percent from current 11-12
- To reduce the dollarization and leverage the tugrug use and savings at banks
- To event the external balance risks associated with the current economic recession in case if the Parliament doesn’t approve increasing the debt ceiling or the FDI continues to plunge.
N.ZOLJARGAL: 8% MORTGAGE LOAN STAY UNCHANGED
FDI in 2014 was USD 800 billion, which is reduced to the level of 2008. In 2008 our economy was three times smaller or MNT 7 trillion from its current size. Current economy expanded up to MNT 21 trillion.
According to this comparison deficit of USD 6 billion have accumulated in just 2-3 years. Without FDI inflow it will be hard to maintain the economy.
Due to the plunging FDIs, currency difference reached the MNT 400-500. If the FDIs will increase BoM might review the policy rates as well.
Will the banks increase their loan interest rates?
Policy rate is one of the components for the calculating the interest rates. It greatly depends on what conditions the banks are borrowing from BoM. In 2012 when policy rate was at 13,25 percent inflation reached 14 percent and interest rates were at 18 percent. This is one of the basic factors. It is undeniable.
Loan risk plays big role in setting of the interest rates. If seen from that angle it is not necessarily translates into mandatory increase. It might have good impact on economic stabilization and increase in the FDIs. I would say, economic events in the first half would have more impact on the interest rates of banks.
What changes might happen to the 8% mortgage rates due to this increase?
Parliament gave directions on lowering the funding for the Price Stabilization Program, Housing Program with 8% mortgage loans and subsidies for the construction sector gradually. Total money supplied in 2013 was MNT 3,3 trillion, which dropped to MNT 2,2 trillion currently and by the end of 2015 is expected to drop to MNT 1 trillion.
MNT 1.1 trillion of total money supply was directed at financing of 8% mortgage loans. Compared to last year the demand for the housing fell three times this year. During the last meeting of the Monetary Policy council we have discussed the mortgage loan program and it was revealed that Mortgage loan program was one of the correct policies for residents. Therefore, concluded that mortgage loan rates should not be changed.
How much money supply is needed for the decrease in the currency rates?
USD 1 billion will drive the appreciation of the tugrug by MNT 100, according to the statistics of 2010. But it does not imply it will directly improve the situation.
In last 2-3 years according to our calculations deficit of USD 6 billion has accumulated. This brought the depreciation of tugrug by MNT 400-500.
MACRO ECONOMIC INDICATORS
Official currency reserves by the end of Novermber 2014 was at USD 1,2 billion and the number reached USD 1,6 billion by the end of 2014. This means that Mongolia has reserves to supply the 4,9 months worth of imports. According to the International Monetary Fund reserves enough for 2.8 months is considered not risky. Therefore, no big risks in regards with imports in the near future.
HOW DO YOU FORECAST 2015?
S.Bold, Advisor to BoM Governor, General Economist:
Finance Stability Council of Mongolia has met on January 13th to assess the current economic situation and came up with guidance.
UNPLEASANT 2014
High dependency on the mining sector alone and the plunging FDIs equal to the 72% of the total GDP caused the current economic downturn.
Compared to 2011 this year has seen the drops in FDIs by USD 6,8 billion and export revenues plunged by USD 2,2 billion.
In view of these BoM implemented the Price Stabilization Program, which was directed to:
- To curb the inflation
- To stabilize the inflation rates
- To keep the economic expansion
- To keep the employment rate
- To prevent from the domestic active depreciation
WILL THE ECONOMY EXPAND IN 2015?
IMF has lowered the economic growth expectations to 5,4 percent last December. If Mongolian Government is to take into account the guidance from Financial Stability Council there is real potential for the economic expansion in 2015.
There is no forecast of the visible increase in the FDI inflow. But if the debt ceiling is to be raised there are ways to attract the currency inflow through the accounts. Although this is not the ideal way as it increases the debt burden for the businesses and cannot fight the turgug depreciation much.
4 WAYS TO HEAL THE ECONOMY
- Correct budget policy and implementation
- Measures to increase the foreign currency inflow
- Monetary policy directed at stabilizing the external balance, financial stability and curbing the inflation
- Differentiation of the economy and reduce the dependence on mining only.
BANKS WORKED WITH GOOD RESULTS IN 2014
B.Javkhlan, Chief Vice President of BoM:
There are 14 banks operating on the market currently. In 2014 major banks succeeded with fulfilling criteria, especially top 6-7 banks have high results. While BoM requires 25% implementation those banks ended the 2014 with 30-35% implementation. Each bank has successfully reached the own capital requirement this year.
Has the percentage of the non-performing loans increase in last year?
Although the business operations are slowing down at major economic sectors, non-performing loan rate is at 5 percent for all the banks. This is considered as moderate compared to the current economic situation.
One of the main reasons behind non-performing loans is the too optimistic assumption of the budget revenues. In this regard, adjusting the budget to more realistic numbers has prevented the possible increase of the non-performing loans in 2015.
Yesterday Bank of Mongolia raised its policy rates by 1 percent and current rate is set at 13 percent. The reason for this raise was explained by Mr B.Otgontugs, Professor at NUM and Member of the Monetary Policy Council as:
- To intensify domestic economic and increase its flow
- To curb the inflation to 10, 9 and 8 percent from current 11-12
- To reduce the dollarization and leverage the tugrug use and savings at banks
- To event the external balance risks associated with the current economic recession in case if the Parliament doesn’t approve increasing the debt ceiling or the FDI continues to plunge.
N.ZOLJARGAL: 8% MORTGAGE LOAN STAY UNCHANGED
FDI in 2014 was USD 800 billion, which is reduced to the level of 2008. In 2008 our economy was three times smaller or MNT 7 trillion from its current size. Current economy expanded up to MNT 21 trillion.
According to this comparison deficit of USD 6 billion have accumulated in just 2-3 years. Without FDI inflow it will be hard to maintain the economy.
Due to the plunging FDIs, currency difference reached the MNT 400-500. If the FDIs will increase BoM might review the policy rates as well.
Will the banks increase their loan interest rates?
Policy rate is one of the components for the calculating the interest rates. It greatly depends on what conditions the banks are borrowing from BoM. In 2012 when policy rate was at 13,25 percent inflation reached 14 percent and interest rates were at 18 percent. This is one of the basic factors. It is undeniable.
Loan risk plays big role in setting of the interest rates. If seen from that angle it is not necessarily translates into mandatory increase. It might have good impact on economic stabilization and increase in the FDIs. I would say, economic events in the first half would have more impact on the interest rates of banks.
What changes might happen to the 8% mortgage rates due to this increase?
Parliament gave directions on lowering the funding for the Price Stabilization Program, Housing Program with 8% mortgage loans and subsidies for the construction sector gradually. Total money supplied in 2013 was MNT 3,3 trillion, which dropped to MNT 2,2 trillion currently and by the end of 2015 is expected to drop to MNT 1 trillion.
MNT 1.1 trillion of total money supply was directed at financing of 8% mortgage loans. Compared to last year the demand for the housing fell three times this year. During the last meeting of the Monetary Policy council we have discussed the mortgage loan program and it was revealed that Mortgage loan program was one of the correct policies for residents. Therefore, concluded that mortgage loan rates should not be changed.
How much money supply is needed for the decrease in the currency rates?
USD 1 billion will drive the appreciation of the tugrug by MNT 100, according to the statistics of 2010. But it does not imply it will directly improve the situation.
In last 2-3 years according to our calculations deficit of USD 6 billion has accumulated. This brought the depreciation of tugrug by MNT 400-500.
MACRO ECONOMIC INDICATORS
Official currency reserves by the end of Novermber 2014 was at USD 1,2 billion and the number reached USD 1,6 billion by the end of 2014. This means that Mongolia has reserves to supply the 4,9 months worth of imports. According to the International Monetary Fund reserves enough for 2.8 months is considered not risky. Therefore, no big risks in regards with imports in the near future.
HOW DO YOU FORECAST 2015?
S.Bold, Advisor to BoM Governor, General Economist:
Finance Stability Council of Mongolia has met on January 13th to assess the current economic situation and came up with guidance.
UNPLEASANT 2014
High dependency on the mining sector alone and the plunging FDIs equal to the 72% of the total GDP caused the current economic downturn.
Compared to 2011 this year has seen the drops in FDIs by USD 6,8 billion and export revenues plunged by USD 2,2 billion.
In view of these BoM implemented the Price Stabilization Program, which was directed to:
- To curb the inflation
- To stabilize the inflation rates
- To keep the economic expansion
- To keep the employment rate
- To prevent from the domestic active depreciation
WILL THE ECONOMY EXPAND IN 2015?
IMF has lowered the economic growth expectations to 5,4 percent last December. If Mongolian Government is to take into account the guidance from Financial Stability Council there is real potential for the economic expansion in 2015.
There is no forecast of the visible increase in the FDI inflow. But if the debt ceiling is to be raised there are ways to attract the currency inflow through the accounts. Although this is not the ideal way as it increases the debt burden for the businesses and cannot fight the turgug depreciation much.
4 WAYS TO HEAL THE ECONOMY
- Correct budget policy and implementation
- Measures to increase the foreign currency inflow
- Monetary policy directed at stabilizing the external balance, financial stability and curbing the inflation
- Differentiation of the economy and reduce the dependence on mining only.
BANKS WORKED WITH GOOD RESULTS IN 2014
B.Javkhlan, Chief Vice President of BoM:
There are 14 banks operating on the market currently. In 2014 major banks succeeded with fulfilling criteria, especially top 6-7 banks have high results. While BoM requires 25% implementation those banks ended the 2014 with 30-35% implementation. Each bank has successfully reached the own capital requirement this year.
Has the percentage of the non-performing loans increase in last year?
Although the business operations are slowing down at major economic sectors, non-performing loan rate is at 5 percent for all the banks. This is considered as moderate compared to the current economic situation.
One of the main reasons behind non-performing loans is the too optimistic assumption of the budget revenues. In this regard, adjusting the budget to more realistic numbers has prevented the possible increase of the non-performing loans in 2015.