Tugrug depreciation ‘temporary’, says Mongol Bank
In recent days, the tugrug has been slowly depreciating. On Friday, the exchange rate of one USD was 2,475 MNT, as of today it is 2,466 MNT. This signifies a one percent depreciation for the tugrug since the beginning of 2018, reported Mongol Bank officials during a press conference.
Mongol Bank has explained that a fluctuation in the exchange rate happens every year in the lead up to Naadam in May and June.
“We believe that a one percent depreciation is only relevant in the shortterm. The exchange rate, which has been relatively stable in the past few months, begun fluctuating last week,” A.Enkhjin, director general of Reserve Management Financial Markets Department at Mongol Bank said.
A.Enkhjin explained that there has been no large economic trend recently that would signify depreciation beyond the one percent observed this week.
The balance of payments had a deficit of 47 million USD in the first four months of 2018, a twofold decrease compared to the deficit in the first four months of 2017. The foreign trade surplus also surpassed 700 million USD.
“Every year in May and June, the economy becomes more active. These months see a spike in imports. Looking at imports, consumer products only accounted for a small percentage. Equipment and diesel fuel were the main increases in import due to construction. Imports rose 45 percent compared to last year,” A.Enkhjin added.
...Mongol Bank has explained that a fluctuation in the exchange rate
happens every year in the lead up to Naadam
in May and June...
Mongol Bank has said that it believes that the balance of payments of Mongolia will be at a surplus of 300 million USD by the end of 2018. The next tranche of funding as part of the extended fund facility is expected to be transferred by the end of this week.
The Oyu Tolgoi underground mine development will see 1.2 billion USD expended in this year alone.
“Overall a channel of 1.5 billion USD from foreign investors and 850 million USD from international organizations and donors will be opened. This is the main factor in keeping the exchange rate of the dollar low,” A.Enkhjin said.
Big-picture wise, the economy has seen a steady recovery, which allows the central bank to operate on the belief that the turgug will not depreciate significantly, at least in the short-term.
In addition, the central bank is strengthening its foreign exchange reserves by setting a goal to purchase 22 tons of gold this year. By doing this, Mongol Bank believes that foreign exchange reserves will increase to four billion USD. The net reserves of the central bank currently stand at 1.2 billion USD.
After the report, A.Enkhjin took questions from the media.
Parliament recently ratified the Law on Bank Recapitalization in a closed-door session. Did the public purchase large amounts of US dollars before this law was approved?
The dollarization of savings amongst the public has decreased. Dollars held by bank accounts of businesses increased. But since exports have been surging, this is not a worrisome issue.
Have banks been concentrating dollars in order to increase their profits? Did this cause fluctuation in the exchange rates?
Banks are in a short position when it comes to dollars. It is not beneficial for the tugrug to depreciate for banks at this time. Therefore, it is not realistic for banks to depreciate the tugrug further.
Will repaying the 140 million USD Dim Sum bond affect the exchange rate?
The Ministry of Finance will conduct the repayment of the Dim Sum bond. The ministry raised the money and placed the money in an account at Mongol Bank. This means that there will be no influence on the exchange rates.
Then what exactly affected the changes in the exchange rate?
It could possibly be the fact that Mongol Bank has not intervened in the market recently. We have a free floating exchange rate system. Mongol Bank has sought to minimize its participation in this market and not supply money every time there is a fluctuation. Last Friday, we organized our irregular currency auction, selling 88.7 million USD at an exchange rate of 2,451 MNT. A regular auction will be organized this Tuesday and Thursday and Mongol Bank will decide to participate or not depending on the needs of banks.
Tourism is active mainly in the summer. Does the revenue of this sector affect exchange rates of the tugrug?
The cash that flows out of the country through medical tourism of Mongolians exceeds the revenue brought to Mongolia by foreign tourists. For this reason, the revenue of tourism does not affect exchange rates.