Home News MONGOLIA LIFTS RATES TO HALT CURRENCY SLIDE MONGOLIA LIFTS RATES TO HALT CURRENCY SLIDE Mongolia raised interest rates to 15 per cent from 10.5 per cent and froze some public spending on Thursday after the tugrik hit a record low against the US dollar following 23 days of weakening. The mining-dependent economy has been one of the worst hit by the global commodities downturn following a debt and construction bubble during the boom years. The state increased spending before expected revenues from projects including the Oyu Tolgoi copper and gold mine in the Gobi desert began to flow into government coffers, amplifying the strain of the slowdown. The tugrik hit a record low of 2,272.5 to the dollar on Thursday after weakening by 11 per cent in the space of a month. The currency is worth half what it was in the autumn of 2008. Official projections from international development banks — aided by a strong dose of government pressure — still show the economy growing for 2016 but for many Mongolians, the economic strain has already hit home. Dale Choi of Independent Mongolian Metals and Mining Research said: “We perceive projections for midterm growth by development institutions to be overly optimistic and outdated as the underlying Mongolian economy is already in recession.” Borrowing on international markets and from China, Mongolia’s neighbour, have soared while official reserves are just US$1.3bn. Some of the world’s largest investors, including BlackRock, Pimco and Aberdeen Asset Management own Mongolia’s government bonds, leaving them exposed to the sharp downturn in the country’s fortunes. However falling yields in Mongolia’s dollar-denominated bond market suggest investors are not expecting a default. The sparsely populated Asian nation sold its first international government bond in 2012, at the height of the global commodities boom, with a coupon of 5.125 per cent — then a lower rate than Spain paid to borrow. Falling commodity prices have since soured investor appetite for Mongolian assets, pushing the yield on the same bond to almost 12 per cent in early 2016. The higher the yield on a bond, the lower its price. In March this year, Ulaanbaatar came back to markets for a further $500m over five years and was forced to pay a 10.88 per cent borrowing rate. Many international experts expect the country to require a bailout but Mongolian politicians have so far refused to discuss the possibility. Last month, the Mongolian People’s party — heir to the former ruling communists — returned to power in a landslide election victory after the squabbling Democratic party proved unable to put the economy on an even keel. For the International Monetary Fund to provide support it would want Mongolia to raise interest rates and tighten fiscal spending — exactly what the new government is doing, said Kevin Daly, senior investment manager at Aberdeen Asset Management. “If there was an IMF programme that would shore up confidence and act as a backstop, but even without that there is no expectation of default. Investors remain confident of that,” he added. Source:http://www.ft.com/cms/s/0/ac6ac77a-6522-11e6-a08a-c7ac04ef00aa.html#axzz4HjjRLCZO