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📈 The Bank of Mongolia raised its policy rate by 0.5 percentage points to 12.5% at an extraordinary meeting of the Monetary Policy Committee on August 12. The central bank also increased the reserve requirement on tugrik-denominated liabilities by 0.5 percentage points to 14.5%, marking a renewed tightening of monetary conditions as inflation remains elevated.

🔥 Annual inflation reached 13.0% nationwide and in Ulaanbaatar in July 2026, significantly exceeding the central bank’s target range. Higher fuel and food prices, together with increases in administered prices, accounted for the majority of inflationary pressure. Core inflation, which had risen gradually since the beginning of the year, also accelerated slightly more than expected in July.

🌍 External and supply-side risks remain elevated. The Bank of Mongolia noted that geopolitical tensions have increased uncertainty surrounding fuel prices and supply, while the outlook for external inflation has also strengthened. At the same time, higher coal and copper prices and stronger export volumes are improving Mongolia’s terms of trade, supporting the balance of payments and broader economic activity.

🔭 The central bank expects food inflation to begin easing from August as supplies of meat and vegetables improve. Assuming fuel price pressures do not intensify further, headline inflation is projected to return to the target range around mid-2027. However, prolonged fuel supply constraints and stronger external price pressures could keep inflation elevated, leaving future monetary policy decisions dependent on incoming inflation and economic data.

📌 Key Takeaways

• Policy rate: 12.0% → 12.5%

• Tugrik reserve requirement: 14.0% → 14.5%

• July 2026 annual inflation: 13.0%

• Key inflation drivers: Fuel, food and administered prices

• Expected return to target range: Around mid-2027

💡 Ard Insight

The simultaneous increase in the policy rate and reserve requirement sends a clear signal that the Bank of Mongolia is prioritizing inflation expectations and price stability over near-term monetary accommodation. Tighter conditions may support tugrik-denominated savings and fixed-income yields, but could also raise banks’ funding costs, tighten credit conditions and moderate private-sector borrowing and domestic demand.

Looking ahead, fuel prices and supply, core inflation, fiscal spending and exchange-rate developments are likely to determine the direction of monetary policy. If supply shocks continue to feed into underlying inflation and inflation expectations remain elevated, restrictive monetary conditions could persist for longer, with further tightening remaining possible.

Conversely, if food inflation eases as expected and fuel-related pressures stabilize, maintaining the policy rate at its current level may become the more likely near-term path.

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