Mongolia’s monetary policy interest rate has increased by 4.5 points to reach 15 percent. Mongol Bank will present July’s preliminary balance of trade (BOT) performance report on Monday. As cuts to the state’s budget expenditures are being discussed, the nation’s balance of trade will become an increasingly important economic indicator. Balance of trade shows what a nation has created, the income earned from foreign exchange, what was exported,
and what payments were made for foreign trade.
BOT can reflect the general state of the economy. As of July 2016, Mongolia’s BOT showed
a 166.2 million USD loss. Compared to the same period in 2015, the deficit was 43 percent
less in 2016, equivalent to 125.3 million USD.
Balance of trade has seen continuously decreasing losses over the past 20 months, which
has had a positive effect on economic stability. Considering this data, some economists have
noted that our economy is in healthy balance.
Last month, international trading account gains increased by 50.8 million USD, whereas
revenue account loss decreased by 218.1 million USD. It definitely affected economic stability.
The current balance of trade equilibrium, as of June 2016, has a loss of 96.3 million USD.
Subsequently, losses increased twice according to the preliminary performance report
in July. However, Mongolia’s BOT has maintained a positive outlook. Mongol Bank announced
that they are refusing to use non-traditional monetary policy tools, and will be presenting
a preliminary performance report at the end of each month.
As of July, capital and financial equilibrium had a profit of 399.5 million USD.
However, profit fell by 22 percent (111.3 million USD) from the same period in 2015.
This was attributed to decline in profits of 154.5 million USD for the nation’s investment portfolio.
These losses represent a lack of foreign direct investment in our economy.
To recover equilibrium for the balance of trade and to turn around the current economic
situation, the U.S. dollar plays a highly valuable role. The economy has recently recovered from balance of trade pressure, and again, the economy is facing the burden of a budget deficit.
A number of economists state that our economy is growing but remains vulnerable. A current
account deficit means that the value of a country’s imported goods and services is greater
than the value of the goods and services it exports.
Last year, BOT deficit decreased by 469 million USD.
We expected to have a positive balance at the year end, but the sudden increased deficit in July makes a positive balance seem doubtful.
The monetary policy statement issued by Mongol Bank’s board of directors noted, “Mongolian foreign trade balance improved by 602 million USD in the same period of the previous year compared to the first half of this year; the current account deficit decreased by double [last year’s deficit].”
According to this statement, foreign currency inflow and outflow shows positive signs for the economy. If BOT continuously declines and foreign direct investment rises, the MNT
exchange rate against USD will decrease and slow down the stress of rising exchange rates.
Currency exchange rates have a direct effect on foreign trade balance. As a result of
the exchange rate, we risk facing enormous losses. The loss will affect the inflation rate and
our quality of life. Mongol Bank says that this is why they have implemented monetary policy
tools to maintain BOT over the past three years. As a result, we have had the positive numerical outcomes in the economy mentioned above.
Mongol Bank drastically increased the monetary policy interest rate to increase return on
MNT. Economists have stated that this will help stabilize the exchange rate and the economy.
It is also expected that Mongolia will see a 400 million USD profit inflow from investment in the second phase of the Oyu Tolgoi project.
Oyu Tolgoi’s investment and new monetary policy are the key factors to seeing the balance
of trade without losses at the end of the year.