Mongol Bank Maintains Policy Interest Rate, Introduces Macroprudential Measures

Strategic Insights -

Amid concerns over rising household debt and weaker-than-expected economic growth, Mongol Bank's Monetary Policy Committee announced it would keep the policy interest rate unchanged at 12 percent. The committee also implemented a new macroprudential measure, setting a maximum debt-to-income ratio of 50 percent for newly issued bank loans and other consumer loans. This move aims to mitigate household debt risks and strengthen financial sector stability. Annual inflation has declined to 8.3 percent nationwide, but remains above the central bank's target range due to rising prices of certain state-regulated goods and services.

Key Takeaways:

  • The Monetary Policy Committee of Mongol Bank decided to maintain the policy interest rate at 12 percent to address slowing inflation and weaker-than-expected economic growth.
  • A new macroprudential measure was introduced, setting a maximum debt-to-income ratio of 50 percent for newly issued bank loans and other consumer loans to mitigate household debt risks.
  • Annual inflation declined to 8.3 percent nationwide as of May 2025, but remains above the central bank's target range.
  • Mongol Bank aims to guide inflation toward six percent (+-2 percentage points) in 2026, and five percent (+-2 percentage points) from 2027 onwards.
  • The country's economy grew by just 2.4 percent in the first quarter of 2025, falling short of forecasts due to reduced output in key mineral sectors and a significant drop in transportation revenues.
  • Factors supporting growth in the remainder of the year include a recovery in the agricultural sector, increased copper concentrate production, and the launch of new construction projects.
  • Geopolitical tensions and shifting global trade policies continue to weigh on external demand and commodity prices.
  • Mongol Bank raised concerns about the rapid increase in pension-secured loans in recent years, warning that they are placing a growing financial burden on elderly borrowers.

Statistics:

  • Policy interest rate: 12 percent
  • Maximum debt-to-income ratio for newly issued bank loans and other consumer loans: 50 percent
  • Annual inflation rate: 8.3 percent (nationwide) and 9.4 percent (Ulaanbaatar) as of May 2025
  • Inflation target: six percent (+-2 percentage points) in 2026, and five percent (+-2 percentage points) from 2027 onwards
  • First quarter 2025 economic growth rate: 2.4 percent
  • Reduced output in key mineral sectors: significant
  • Drop in transportation revenues: significant
  • Trade balance influenced by gold and copper prices: relatively high

Sources:

  • Mongol Bank
  • B.Lkhagvasuren, Governor of the bank