The exchange rate of the MNT against the USD has stabilized at 2,353 MNT, after reaching a record high of 2,600 MNT back in November 2016.
The depreciation of the MNT began slowing down during negotiations for Mongolia’s enrollment in the International Monetary Fund’s extended fund facility (EFF) program. After enrollment in the program was officially approved, both IMF and government officials forecasted the revival of the MNT.
In August 2016, the Bank of Mongolia’s Monetary Policy Committee raised the central bank’s policy interest rate from 10.5 to 15 percent. The reasoning provided for the increase was the dramatic depreciation of the MNT after the parliamentary elections.
Policy interest rates are increased by central banks when liquidity decreases and decreased when liquidity increases. As a result, the rate is considered a good indicator of the health of a country’s overall economy and banking system.
On June 15, The Monetary Policy Committee felt confident enough to lower the policy interest rate from 14 percent to 12 percent.
After the official approval of enrollment in the IMF’s EFF program, officials from the central bank stated that the foreign exchange reserves of the nation would increase to 1.6 billion USD by the end of 2017, and that they would ultimately rise to four billion USD.
Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary policy. The exchange rate is heavily influenced by a country’s foreign exchange reserves. Raising Mongolia’s reserves to four billion USD would not only help reverse the depreciation of the MNT but would also help protect the economy from external shocks.