UPDATE 2-Mongolia jacks up interest rates in effort to halt currency's plunge

Thu Aug 18, 2016 7:40am EDT
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By Terrence Edwards

ULAANBAATAR Aug 18 (Reuters) - Mongolia raised its benchmark interest rates by 4.5 percentage points to 15 percent on Thursday, the central bank said, in a bid to stabilise a currency that has been in free-fall.

Elected in a landslide in late June, the country's new government has been plunged into an economic crisis, with its currency, the tugrik, losing 8 percent against the dollar so far this month, making it the world's poorest performing currency.

"Financial measures for the medium term have been taken to increase the rate of return for local-currency assets and provide more stability for the tugrik," the central bank said in a statement.

The Mongolian People's Party government, headed by Prime Minister Jargaltulga Erdenebat, is also cutting government salaries and suspending selected welfare programmes in a bid to reduce its costs.

The landlocked North Asian country, wedged between China and Russia, has been struggling with weak demand for its chief export commodities, coal and copper, as well as a collapse in foreign investment.

Mongolia's new finance minister, Battogtokh Choijilsuren, warned the 3 million strong nation last week that the government would struggle to pay out wages, prompting a collapse in Mongolia's sovereign bonds.

The state is even struggling to pay out prize money to its Olympic athletes.   Continued...