Tugrug to dollar exchange rate reaches record high of 2,500 MNT

On September 17, the tugrug to dollar exchange rate reached a record high of 2,500 MNT against one USD, said to be driven by higher cash outflow due to increased economic activity.

According to the central bank, the tugrug has been depreciating for the past three months due to several factors which include higher imports, seasonal conditions, and the outflow of cash due to higher economic activity. As the economy rebounds and imports increase, there is an inevitable depreciation of the tugrug. As people sell turgug in order to buy dollar assets, the supply of tugrug in the market increases, which depresses the value of the tugrug.

In addition, summer is a prime season for business activity, tourism, and construction. As a result, seasonal conditions have been a significant factor in the most recent depreciation of the tugrug.

Meanwhile, the start of the school year also signifies a major outflow of cash as approximately 60,000 students pay their tuition. Much of the tuition is either paid by parents or the government through a state scholarship, thereby resulting in a not so insignificant outflow of cash.

Mongol Bank has said that it purchased 12.2 tons of gold in the first eight months of 2018 and that foreign exchange reserves currently stand at 2.9 billion USD. A stronger reserve of foreign currencies has not resulted in direct appreciation but has likely prevented depreciation at a higher level for the tugrug, the bank says.

Mongolia’s balance of payments for the first eight months has been in a deficit of 198.5 million USD, a quadruple increase compared to the same period in 2017. Growth of imports outpaced growth of exports two times over.

In addition, the debt repayment of the Dim Sum Bond and the Chinggis Bond has been a major factor in the balance of payments deficit.

The central bank tends to intervene on the foreign exchange markets when major depreciation of the tugrug is impending. Last August, central bank authorities pumped 180.3 million USD into the market in order to prevent any significant fluctuations in the exchange rate.

Moving forward, Mongol Bank has said that the tugrug depreciation is seen as temporary and as the economy recovers further, the exchange rate is expected to stabilize.