During its 2025 regular session, the Monetary Policy Committee of the Bank of Mongolia made the decision to increase the policy interest rate by two percentage points to 12 percent, taking into account the current state of the economy, banking, and financial markets, the external and internal domestic risk factors. 
The Monetary Policy Committee revised the debt-to-income ratio (DTI) cap for newly issued and restructured consumer loans to 50 percent. For loans secured by pension and welfare benefits, a new regulation requires that borrowers retain an income level at or above the minimum standard of living after making their monthly loan payments. 
The Monetary Policy Committee highlighted that rising prices in state-regulated services and their cost pass-through effects are intensifying inflationary pressures and posing risks of further acceleration. Given these concerns, the Committee opted to tighten monetary policy by increasing the policy rate by two percentage points to stabilize inflation at its target level. The decision also reflects the impact of falling export commodity prices, rising external sector vulnerabilities, and inflationary pressures driven by demand cost factors. Raising the policy rate to 12 percent is expected to curb inflation expectations and stabilize financial markets. 
As of the end of 2024, the total outstanding balance of consumer loans in the banking system had reached MNT 11.4 trillion, reflecting a 35.5 percent increase compared to the same period in 2023. Of this growth, salary-backed loans accounted for 23.7 percentage points, while pension loans contributed 5.3 percentage points. On average, households allocate no less than 48 percent of their monthly income toward basic living expenses. However, many borrowers tend to take out loans at the maximum DTI cap of 55 percent.  
Data revealed that 53.2 percent of pension recipients currently have outstanding pension loans, with an average DTI ratio of 84 percent. Pension loan borrowers often struggle with high repayment burdens and tend to restructure their loans before fully repaying their existing obligations. This pattern indicates financial dependence and growing repayment challenges. In response, the new regulations ensure that pension and welfare loan borrowers retain an income level above the minimum living standard after making loan payments. 
Rising wages have expanded borrowers’ access to credit, leading to excessive consumer loan growth and, consequently, exerting pressure on the balance of payments and exchange rate stability. To mitigate these risks, the Committee emphasized the need to limit the rapid expansion of consumer lending. Setting the DTI cap at 50 percent aligns with international best practices while shifting bank credit toward business loans is expected to support employment and ensure sustainable economic growth.

Published Date:2025-03-25