The nationwide annual inflation, which is measured by the consumer price index stands at 6.3 percent and 6.8 percent in Ulaanbaatar city as of October, reported the BoM. Governor of the BoM Bayartsaikhan Nadmid addressed, “Although commodity price stands relatively high and the economy grew by 6.7 in the third quarter of this year, uncertainty in external economy environment remains high. Budget deficit of next year has been approved at high level. The U.S Federal Reserve Bank’s decision to raise the interest rate and China’s restriction to its coal import are affecting the balance of payments and stressing the FX market. Therefore, the bank has decided to stabilize inflation at target level in the mid-term, and on the contrary, carefully observe uncertainty.”

According to analysts of Bloomberg Economist Club, key drivers in higher interest rate are the increased budget planning, foreign exchange rate, economy and International Monetary Fund demands. Money supply grew by 21.5 percent, to MNT 17.9 trillion, issuance of consumer loan jumped by 24 percent and business loans increased by 5 percent in the third quarter of this year. Plus, the IMF mission, at the completion of its sixth review under the Extended Fund Facility program, highlighted that a stronger domestic demand conditions are widening the current account deficit, halting reserve accumulation and suggested the BoM to rein in high credit growth through tighter monetary conditions and the introduction of well-targeted macro-prudential measures. The bank previously decided not to touch the interest rate in both June and September; however, three measures related to consumer loans and FX risks will take effect starting from January 2019. As for inflation, analysts view that it stands below the target level of 8 percent.