Monetary policy instruments
In Latvia, the monetary policy is implemented through the following monetary policy instruments:

• reserve requirements
• market operations;
• standing facilities of lending and deposit of funds.

Reserve requirements imply that credit institutions must hold a certain ratio of the attracted deposits and debt securities issued with the Bank of Latvia. In the event the reserve requirements are increased, credit institutions will have to hold more funds with the central bank. It means that the amount of funds attracted by credit institutions, which is at their disposal and could be freely placed in the economy, thus increasing the level of credit and broad money, will decrease. Reserve requirements as a monetary policy instrument ensure a higher stability in the monetary base demand and facilitate effectiveness of market operations, preventing excessive interbank interest rate daily fluctuations.

The Bank of Latvia regularly performs the following market operations:

• main refinancing operation tenders, where the Bank of Latvia grants funds in lats to credit institutions against a securities collateral;

Other market operations (longer term refinancing operations, foreign exchange swap tenders, fixed-term deposit tenders, tenders of outright purchase and sale of securities) are held irregularly or have not been performed at all at the Bank of Latvia.

Moreover, credit institutions can make use of the following standing facilities of lending and depositing of funds:

• borrow funds in lats from the Bank of Latvia against a securities collateral with overnight maturity;
• deposit funds in lats with the Bank of Latvia with overnight and 7-day maturity.